The recent shift in the performance benchmarks of Fund of Funds (FOFs) managed by several major Chinese asset management companies, including E Fund and Everbright Securities, has stirred much anticipation and discussion within the financial communityThe changes signal a significant transition from previously standard broad-based index comparisons to a focus on fund-specific indices, alongside a pivot towards multi-asset allocation strategiesThe essence of this transformation lies in amplifying the distinct investment characteristics of FOFs, which were initially thought to be somewhat overshadowed by traditional mixed funds.

Observers in the industry are cautiously optimisticThey note that while nearly all FOF products have delivered excess returns this year, the sector grapples with the paradox of increasing numbers but stagnant overall scaleTraditional mixed funds, which boast larger asset bases, tend to occupy a space that makes it challenging for FOFs to thrive

The impending question for the public fund industry is how to carve out a unique identity for FOFs and leverage the multi-asset allocation philosophy for future growthThis has become a critical task for firms looking to expand their FOF offerings.

As of November 12, E Fund's Ruiyi Antai one-year holding period mixed fund of funds (FOF) recalibrated its performance benchmark from a mix of "90% China Bond New Comprehensive Index (Wealth) yield + 10% CSI 300 Index yield" to a new structure that includes "85% CSI Bond Fund Index yield + 10% CSI Equity Fund Index yield + 5% post-tax demand deposit rate." Similarly, four other FOF products from the same company adjusted their benchmarks, aligning them more closely with fund indices rather than broad market ones.

This development isn't an isolated incidentFor instance, Citic Securities also recently modified its benchmark for the Rui-Xuan six-month holding period mixed fund of funds (FOF), which was changed from a combination of "70% CSI 300 Index yield + 25% CSI Comprehensive Bond Index yield + 5% post-tax bank demand deposit rate" to "90% CSI Equity Fund Index yield + 10% post-tax bank demand deposit rate." Such adjustments highlight a broader trend within the FOF sector towards frameworks that better encapsulate their investment strategies and risk-reward characteristics.

Wang Yi, an investment researcher at Ge Shang Financial, emphasizes that by reorienting benchmarks to fund indices, FOFs can more accurately reflect their investment goals and product positioning

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This perspective aligns well with the evolving expectations of investors, who are increasingly looking for clear risk-return profiles in their investment choices.

Despite operating for seven years, the FOF segment continues to face significant challengesData from Choice indicates that as of November 12, nearly all FOFs have outperformed their respective benchmarks year-to-dateHowever, FOFs remain relatively niche, accounting for less than 1% of total fund assets in China, with their aggregate scale still hovering below 150 billion CNY as of September 30, according to Tianxiang Investment AdvisorsThis puts FOFs in a precarious position within the broader asset management landscape.

Research from China International Capital Corporation points out the competitive landscape for FOFs remains fierce, as numerous non-FOF mixed funds occupy a substantial portion of the market, consistently accounting for between 30% to 45% of the total fund scale

This creates significant pressure on FOFs, necessitating a clear differentiation from mixed fundsIndustry professionals stress that for FOFs to gain greater market attention and viability, they must embody the true design principles of asset allocation, establishing a unique identity that sets them apart from their traditional counterparts.

In light of these challenges, many FOF managers, who previously specialized in equity and debt allocation, are actively expanding their expertise and capabilities to meet the growing demand for multi-asset investment strategiesThis proactive approach is reflecting a broader understanding of investor needs and changing market dynamics.

The alterations in performance benchmarks are a clear indicator of this strategic shiftEffective November 12, Everbright Securities transitioned its benchmark for the actively allocated mixed fund of funds (FOF-LOF) following the conclusion of its closed period

The benchmark was updated from "85% CSI Equity Fund Index yield + 15% China Bond Comprehensive (full-price) Index yield" to include a more diverse framework of "70% CSI Equity Fund Index yield + 15% MSCI World Index yield (adjusted for valuation rates) + 5% gold spot contract closing price yield at the Shanghai Gold Exchange + 10% China Bond Comprehensive (full-price) Index yield." These adjustments are notable as they open the fund to investments across various asset classes, including global equities and gold.

Industry insiders affirm that changing the performance benchmarks reflects a strategic necessity, as the updated investment direction enables integration across different global markets and commoditiesIn prior investment reports, the fund's activities have shown diverse portfolio strategies, further validating the need for such changes.

Lin Guohua, the director of FOF investment and financial engineering at Everbright Securities, articulates the broader vision behind these changes