Involving 670 billion!, Yu'ebao Emergency

Release time:Apr 16, 2024 20:35 PM

On September 9th, Tianhong Fund announced that Wang Dengfeng, the fund manager who had been managing "National Fund" - Tianhong Fund Yu'ebao for more than ten years, has stepped down. Currently, the fund is jointly managed by Wang Changjun, Tian Yao, and Liu Ying. Tianhong Fund told securities firm China reporters that Tianhong Yu'ebao was jointly managed by multiple fund managers several years ago and is currently operating normally.

As of the end of the second quarter, Yu'ebao had a scale of 674.673 billion yuan, making it the largest fund in China with 746 million holdings, an increase of 1.7148 million compared to the end of 2022. This also reflects the preference of using money market funds to avoid risks under volatile market conditions. Data shows that the share of public funds continued to reach a new historical high in July, with the increase of money market funds being the most significant, adding 815.992 billion yuan to 12.3 trillion yuan in a single month.

Wang Dengfeng Resigns from the National Fund

According to public information, Wang Dengfeng holds a Master's degree in Economics. From July 2009 to May 2012, he served as Senior Manager of the Fixed Income Department at CITIC Securities Co., Ltd. In May 2012, he joined the Fixed Income Department of Tianhong Fund Management Co., Ltd. and served as a fixed income researcher. Starting from August 8, 2012, served as the fund manager of Tianhong Cash Manager Money Market Fund.

In 2013, the gears of fate began to turn. In June of that year, as a "novice village" where countless investors participated in financial management, Yu'ebao emerged with over 100 million holders in just one year of launch. At that time, Yu'ebao's slogan was "1 yuan minimum purchase, redeemable at any time". Users could purchase Yu'ebao shares for at least 1 yuan, with a lower threshold than most savings or fund products, and the subscription was completed online. In addition, a high yield was Yu'ebao's trump card, with a yield of about 6%, much higher than the vast majority of bank fixed deposits. Wang Dengfeng was responsible for managing it.

As of the end of June 2023, the number of holdings reached 746 million households, making it a true "national fund" with a scale of over 670 billion yuan, and also the largest fund in China. According to the regular report of Tianhong Yu'ebao, since its establishment in 2013, Tianhong Yu'ebao has accumulated profits of 254.829 billion yuan for its holders. Among them, in the first half of this year, a total of 6.278 billion yuan was earned for the holders, making it the only public offering product with a profit of over 6 billion yuan

Monetary funds themselves cannot simultaneously possess liquidity, risk, and returns: that is, in the long run, it is impossible to have fund products with strong liquidity, low risk, and good returns simultaneously.

Therefore, Wang Dengfeng stated that it is necessary to provide investors with a low-risk, low return, and high liquidity asset allocation option. Therefore, in the process of managing money market funds, it is necessary to adhere to the investment philosophy of prudent financial management, abandon the practice of comparing returns, and place risk management at the top of fund management. This lower risk preference is also highly consistent with the overall style of Yu'ebao. Since its establishment in 2013, Tianhong Yu'ebao has gone through two complete bull and bear cycles, as well as the impact of market liquidity risk and credit risk events, but no risk events have occurred. In terms of liquidity management, the semi annual report shows that the average remaining maturity of Tianhong Yu'ebao Fund's investment portfolio at the end of the reporting period was only 50 days, far lower than the 80-120 days of other monetary funds. Its cash ratio and high liquidity asset ratio are far higher than other similar products.

Until his resignation, Wang Dengfeng had been managing Tianhong Yu'ebao for over 10 years. In addition, he also managed multiple products such as Tianhong Cash, Tianhong Cloud Business Treasure, and Tianhong Yunbao, with a total management scale of 762.762 billion yuan.

It is worth noting that two years ago, Tianhong Fund had already hired two fund managers, Liu Ying and Wang Changjun, to jointly manage Yu'ebao with Wang Dengfeng. In June of this year, Tianhong Fund announced the appointment of Tian Yao as the fund manager for Yu'ebao. Therefore, Tianhong Fund responded to Wang Dengfeng's resignation by stating, "Tianhong Yu'ebao was jointly managed by multiple fund managers several years ago and is currently operating normally."

Involving 670 billion!, Yu'ebao Emergency

Monetary funds become "safe havens"

According to the 2023 semi annual report data of public funds, the overall size of public funds in the entire market increased by 1.6 trillion yuan in the first half of this year, of which the size of money market funds increased by 1 trillion yuan, with a growth rate of 9.82%, far higher than the average growth rate of 6.37% for public funds as a whole. It is not difficult to see from the rise of commodity base scale that in the sluggish market since the beginning of this year, investors have started to borrow money market funds to avoid risks.

In fact, the profit and loss situation of fund products in the first half of the year also confirms the profit seeking and risk avoidance characteristics of market funds. According to data from Galaxy Securities, as of June 30th, most equity funds, including general equity funds, equity based hybrid funds, flexible allocation funds, and equity bond balanced funds, had volatile returns in the first half of the year. If the warm spring market in January is excluded, the average annual returns of these funds will be negative for the entire year.

On the other hand, although monetary funds have been affected by the marginal slowdown in economic recovery momentum in the second quarter and overall ample liquidity in the interbank market, their net asset value growth rate has continued to decline. However, throughout the first half of the year, their net asset value growth rate has achieved monthly dividends, truly contributing positive returns to their holders.

Therefore, in July, the share of public funds continued to reach a historic high, with monetary funds taking the lead, adding 815.992 billion yuan in a single month to 12.30 trillion yuan.

Sun Guiping, senior analyst at the Shanghai Securities Fund Evaluation and Research Center, believes that there are three main reasons for the rapid rise of monetary funds:

One reason is that the returns are relatively high. As a cash management tool, money market funds have significantly higher returns than current deposits. Although the yield of money market funds has declined in the later period, their convenient redemption and strong liquidity make them still attractive. The second is stable returns with small drawdowns, and losses may only occur in extreme situations. Because monetary funds mainly use the amortized cost method for fund valuation, changes in bond prices cannot be reflected in fund returns, and the duration of fixed income assets held is short, which is less affected by the bond market. Thirdly, it can serve as a "reservoir of funds". In the absence of a better investment direction in the capital market, money market funds have become a better destination for idle funds.

Looking ahead to the second half of the year, Tian Yao, manager of Tianhong Yu'ebao Fund, stated that the current economic fundamentals are still in a weak state. The PMI in August was near the boom bust line, and the frequency of stable growth policies has accelerated. Especially in recent times, stable real estate demand policies have been introduced, which has helped boost confidence. However, fiscal policies still maintain a certain degree of stability, and the economy is still in a slow recovery state. Against this background, monetary policy continues to remain loose, and future reserve requirement and interest rate cuts are still possible. In the process of slow economic recovery and broad currency, the money market maintains low interest rates, while Yu'ebao continues to maintain high liquidity and moderately adjusts the duration according to market interest rate fluctuations, bringing investment returns that match risks to investors.

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