Shenwan Hongyuan Group Co., Ltd. released an analysis of actively managed equity public fund holdings for the first quarter of 2026, highlighting a strategic focus on technology hardware with strong industrial trends and earnings visibility. Communications sector holdings and overweight multiples reached new historical highs, while electronics allocations retreated from peak levels. Following seasonal market volatility, geopolitical tensions in March prompted increased attention and positioning in energy security assets. Notably, new energy sectors—where Chinese manufacturing holds a competitive global advantage—saw higher allocations, particularly in batteries and grid equipment.
Key observations from Shenwan Hongyuan include:
1. **Sector Allocation Trends: Emphasis on Tech Hardware and Energy Security** Actively managed equity funds increased exposure to pharmaceuticals, manufacturing (power equipment/machinery), and cyclical sectors (basic chemicals/petrochemicals/coal/transportation), while reducing allocations in electronics, non-ferrous metals, media, home appliances, automobiles, and retail. Technology hardware remained a core focus: communications sector holdings rose by 1.9 percentage points to 13.1%, with an allocation multiplier reaching 3.34x—the highest among all primary sectors. In contrast, electronics holdings declined slightly to 21.7%, though still the largest sector allocation, with a multiplier of 1.87x. Top holdings included Zhongji Innolight, Contemporary Amperex Technology Co., Limited, and Eoptolink Technology Inc.
Overall TMT (technology, media, telecom) allocations stood at 37%, largely unchanged from the previous quarter but still above historical peaks such as the 2015 internet boom and 2022 new energy highs. Media and computer holdings remained at historic lows of 1.0% and 1.5%, respectively, and continued to see reductions. Historically, when a single sector’s allocation approaches or exceeds 20%, it often experiences high volatility for 2–5 quarters, with price peaks coinciding with or slightly leading allocation peaks. The ongoing focus and rotation within the AI industry chain are expected to persist, with industrial capital movements warranting attention in the second half of 2026.
Energy security allocations rose amid geopolitical concerns, with both new and traditional energy sectors receiving increased funding. Power equipment holdings increased by 1.3 percentage points to 12.8%, with batteries and grid equipment seeing notable inflows. Traditional energy sectors, previously underweight, also gained traction: basic chemicals reached neutral allocation levels, while petrochemicals and coal rose to 1.2% and 0.7% respectively, though still significantly underweight. Banking and property-related sectors saw minor increases, with steel and building materials benefiting from improved fundamentals and capacity optimization.
Pharmaceutical and biological sectors experienced marginal increases. After excluding sector-specific funds, healthcare allocations stood at 4.2%—near historic lows—while broader fund allocations were higher at 8.5%. Sub-sector increases were seen in bioproducts, medical R&D outsourcing, and consumables, while diagnostics, APIs, and medical devices saw reductions.
Sectors facing reductions included non-ferrous metals, consumer goods (home appliances, beverages, dairy), and non-bank financials. Non-ferrous metals fell 1.1 percentage points to 7.0% due to crowded positioning and liquidity pressures from rising global inflation. Consumer durable goods like home appliances and automobiles were trimmed, with allocations nearing neutral levels. Beverage and dairy holdings hit record lows, while processed foods and seasonings saw bottom-fishing activity. Non-bank financials declined to 1.5%, with insurance leading the drop.
2. **Fund Flows and Performance: Improved Sentiment and Inflows** Actively managed equity funds slightly reduced stock exposure, with average equity positions falling 1.3 percentage points to 83.1%. Median fund returns reached 6.7% year-to-date in 2026, outperforming the median individual stock return of less than 1%. While active funds outperformed the Shanghai Composite and CSI 300 indices, they lagged behind the ChiNext, STAR 50, and CSI 500 indices. Since Q3 2024, median fund returns have risen over 60% amid the tech rally, though this remains below historical bull market peaks.
For the first time in three years, actively managed equity funds saw net inflows in Q1 2026, with 111.8 billion units issued and 46.5 billion units redeemed, resulting in a net increase of 65.3 billion units. Allocations remained stable across main boards (52.1%), ChiNext (19.8%), and STAR Market (14.1%). Hong Kong-listed holdings fell by 2.4 percentage points to 13.9%.
3. **Other Market Participants: Leverage Funds, Fixed-Income+, and ETFs** Leveraged funds saw net inflows that peaked then receded in Q1, with strong activity resuming in April. These funds showed alignment with active equity funds in overweighting electronics, power equipment, and communications. Fixed-income+ funds increased equity exposure to over RMB 370 billion, despite a median decline in position sizes. Broad-based ETFs experienced outflows, while sector-specific ETFs in areas like non-ferrous metals, electronics, and power equipment saw inflows. Since April 2026, ETFs have generally seen net outflows, particularly in electronics, computers, and communications.
4. **Risk Considerations** Market analyses based on public fund and margin lending data may not fully represent broader market dynamics. Fund quarterly reports are subject to time lags, and analyses based on top-ten holdings may not reflect complete portfolio positions.