Summary of Key Points
In June this year, the technology sector of the A-share market (especially the electronics and communications sectors) experienced a surge. The number of public funds that doubled in value (with returns exceeding 100% for the year) increased sharply from 2 to 246. However, in July, the sector suddenly corrected, and these funds almost all plummeted, with only 2 funds managing to maintain their double-digit returns. Behind this “flash” market phenomenon was the extreme concentration of investment in technology stocks by funds, as well as investors chasing high prices and getting trapped in their positions. This exposed flaws in the public fund industry’s evaluation mechanisms and the lack of investor education, further undermining the trust that had just begun to recover in the industry.
I. June’s Boom, July’s Decline: How Did the “Doubling Funds” Come About?
In June, the technology sector soared, with the Shenwan Electronics sector rising by 27.73% and the communications sector also experiencing a sharp increase. The net asset values of funds invested in these sectors skyrocketed, pushing the number of doubling funds from 2 to 246. But the good times were short-lived. In July, the market turned around, with the electronics and communications sectors falling by more than 30% on a monthly basis, causing the average value of the 246 doubling funds to drop by 32.65%—almost completely erasing the gains made in June.
For example, the Xinao Performance-Driven A fund had an annual return of 108.52% in the first half of the year but was left with only 19.71% in July; the “halfway champion” Fund, Founder Fubang Core Advantage A, saw its value drop from 183.67% to 57.67%. Many fund investors who bought into these funds at high prices were caught off guard when their accounts turned red, effectively becoming the “sufferers” of the market’s reversal.
II. Why Do Hundreds of Funds Rise and Fall Together?
The reason for the simultaneous rise and fall of hundreds of funds is the high degree of homogenization in their investments. Statistics show that among the 199 active funds that doubled in value in the first half of the year, the top five largest positions covered only 136 stocks, with the communications and electronics sectors accounting for 88% of these positions. Two popular stocks, Zhongji Xuchuang and Xin Yisheng, were heavily held by 89 and 75 funds respectively.
Why do so many funds invest in the same stocks? Fund managers have their reasons: on one hand, they are indeed optimistic about the long-term prospects of AI; on the other hand, there is significant pressure from performance evaluations. If others are investing in technology but not them, their rankings could suffer, potentially leading to job losses. This creates a positive cycle where “the more they buy, the more it goes up,” which turns into a negative cycle where “the more it falls, the more they sell,” resulting in a collective collapse.
III. The Pain Felt by Fund Investors: Chasing High Prices and Getting Trapped at the Top
During the peak of the market in June, investors flocked in. Twenty-three doubling funds experienced purchase restrictions (for example, Caitong Quality Selection went from allowing 10,000 purchases per day to only 100). The scale of Ping An Technology Selection fund increased dramatically from 500 million to 16.1 billion yuan (a 30-fold increase), and the number of new fund accounts opened in the first half of the year rose by 21.73% year-over-year.
However, when the market corrected in July, those who had bought at high prices suffered the most, with many losing half of their investments. What’s more distressing is that this is not the first time such a situation has occurred; investors were already hurt during previous declines in the consumer and new energy sectors, and this latest setback further eroded their trust in public funds.
IV. The Public Fund Industry’s Old Wounds and New Pain: Rebuilding Trust Is Difficult
The public fund industry was still trying to recover from previous setbacks (such as losses in the new energy sector). The rapid rise and fall of AI-related funds this time only added to investors’ disappointment, highlighting that funds do not actually diversify risks but function more like concentrated sector-specific ETFs. When these sectors decline, the losses can be even more severe than if investors traded stocks on their own.
Furthermore, some fund managers have changed their investment styles: those who previously avoided technology suddenly invested heavily in AI for short-term gains but failed to react quickly during the market downturn, causing even greater losses for investors. This approach of seeking quick profits has raised doubts about the professional competence of fund managers—do they rely on skill or luck?
V. How to Protect Yourself in Similar Market Conditions?
1. Set Profit and Loss Targets: Don’t be greedy when prices rise; decide in advance how much you want to earn and at what point you will sell (for example, set a 20% profit target and a 15% loss stop-loss). Stick to these rules strictly.
2. Be Alert to Signs of Liquidity Drought: When the daily trading volume of a sector (such as AI) accounts for more than 15% of the total market, it indicates that funds are concentrated in that sector, which may signal an impending collapse. Sell immediately.
3. **Don’t Overrely on “Doubling Funds”: Funds that double in value in the short term often do so due to temporary market trends (luck) rather than genuine investment strategy. Focus on a fund’s long-term performance and don’t be misled by short-term high returns.
This market experience serves as a reflection of the interconnected nature of gains and losses in A-share sector investments: rapid profits come from concentrated buying, and so do heavy losses. For investors, it’s crucial to remain rational and avoid chasing trends. For the public fund industry, it’s time to reform the evaluation mechanisms that focus solely on rankings and instead help investors achieve long-term returns. Otherwise, once trust is lost, it will be very difficult to rebuild.