The current investment strategy of institutional capital is becoming clearer. Although the fourth-quarter reports of mutual funds only disclose the top ten holdings, it is still possible to gauge the latest allocation trends of institutional funds, as one can see the whole picture from a small part.
Major indices have generally trended upwards this year, with the STAR 50 Index performing particularly strongly, recording a cumulative increase of 12.1% and ranking among the top gainers. The following analysis focuses on the repositioning actions of mutual funds regarding individual stocks on the STAR Market.
As of January 29th, the combined circulating market capitalization of companies listed on the STAR Market was 10.4 trillion yuan, spanning 16 industries. Based on the weight distribution of circulating market cap, the technology sector is undoubtedly the structural core of the STAR Market. Specifically, the electronics industry's market capitalization reached 5.17 trillion yuan, accounting for half of the total. The computer and communications industries together have a market cap of 1.31 trillion yuan. These three major technology sectors collectively represent a weight of 62.1%, constituting the absolute main force. Additionally, industries such as pharmaceuticals and biologics, power equipment, and machinery equipment also hold significant positions with relatively high weights.
"Hard tech" remains the primary battleground for mutual funds. The core rationale for repositioning has shifted from valuation expansion to earnings delivery. Currently, the semiconductor industry chain remains the absolute core for fund allocation. Among the listed companies with holdings exceeding ten billion yuan, 12 made the list, with 9 hailing from the electronics sector.
These nine companies essentially cover key segments of the semiconductor industry chain: chip manufacturing/foundry (e.g., SMIC, Hua Hong Semiconductor), the fabless chip design segment (e.g., Hygon Information, Cambricon, Montage Technology, Yuanjie Technology), semiconductor equipment (e.g., AMEC, Piotech), and IP licensing (e.g., VeriSilicon). It is noteworthy that for Cambricon, Hygon Information, AMEC, and Yuanjie Technology, while the number of holding funds increased, the proportion of shares held decreased. This suggests that after significant prior price increases, major institutional investors (funds with large holdings) may have taken profits, while more small and medium-sized funds began entering for allocation.
Currently, the market's pricing anchor for the semiconductor sector has shifted from "valuation expansion" to "earnings delivery." Explosive growth in order backlogs, direct profit enhancement through acquisitions and capacity expansion, strong and sustained pricing power, and breakthroughs in import substitution within key areas like advanced processes have become the four core logics recognized by the market. This indicates that the core driver for subsequent sector gains will rely more heavily on the actual delivery of fundamental performance.
Semiconductor materials and chip design received significant additional allocations. Looking at the top twenty list ranked by increase in shareholding percentage (of circulating shares), the electronics sector again occupies 9 spots, primarily concentrated in semiconductor materials, semiconductor equipment, and chip design segments. Among them, Shin-Etsu Chemical saw its holding by mutual funds increase by 11 percentage points in the fourth quarter. The structure of the increase suggests it was primarily favored by active equity funds, with Yongying Pioneer Semiconductor Select Mixed Fund making the largest purchase, holding 4.6% of the circulating shares by year-end.
Fund manager Zhang Haixiao mentioned in the quarterly report that the explosion in demand from the inference side of large models supports demand for memory chips, especially DRAM and NAND chips. He believes that wafer fabs, module manufacturers, distributors, data center storage equipment providers, and design companies will all benefit from this super cycle in memory. According to data compiled by brokerages, DDR4, DDR5, DRAM, and NAND Flash products were still experiencing price increases in the fourth quarter of 2025. By the first quarter of 2026, the memory chip upcycle had entered its third quarter, and the sustained upward price trend is expected to continue providing core support for the stock prices of related companies in the chain.
As an upstream player in the entire semiconductor manufacturing industry, Shin-Etsu Chemical's materials can be used not only for memory chips but also in the production lines for logic chips (CPU/GPU), analog chips, and all advanced processes. Shin-Etsu Chemical's profit saw growth in 2025, with net profit attributable to shareholders expected to increase by 118.7% to 167.3% year-on-year.
Mutual funds' increased allocations to the semiconductor chain show a multi-point layout. Besides Shin-Etsu Chemical, they have significantly increased holdings in leading companies across various segments, including materials (e.g., Guanggang Gas, Hubei Jumpcan Pharmaceutical), equipment and components (e.g., Piotech, Tengjing Technology), and chip design (e.g., Purain Electronics, Fudan Microelectronics). These companies that saw notable increases in mutual fund holdings all experienced varying degrees of price appreciation in January. The memory chip concept stock Purain Electronics doubled in just one month, while the material suppliers Shin-Etsu Chemical and Guanggang Gas rose around 40% in January.
It is anticipated that in 2026, the investment focus of mutual funds will shift from capturing sector beta returns to deeply挖掘 individual stock alpha returns. The market will place greater emphasis on earnings delivery and growth potential, significantly increasing the difficulty of stock selection. This trend is also reflected in other sectors.
Pharmaceuticals and biologics represent a key offensive front for mutual funds. As the second-largest sector on the STAR Market, it is also a major holding area for mutual funds. However, only two companies have holding values exceeding ten billion yuan: BeiGene and United Imaging Healthcare. Innovative drug companies constitute the main holdings of mutual funds within the pharmaceuticals and biologics sector. Besides BeiGene, companies with high holding values include Baili Tianheng, RemeGen, Zensun Pharma, InnoCare Pharma, and Dizal Pharma.
However, in the fourth quarter, the top five companies without exception faced a wave of reductions in mutual fund holdings, with the decreases being quite significant. Specifically, Baili Tianheng's holding ratio dropped by 7.9 percentage points, RemeGen's decreased by 8 percentage points, and InnoCare Pharma saw the largest reduction, nearly 20 percentage points.
Particularly, Baili Tianheng announced on January 17th that its major shareholder, OAP III (HK) Limited, also planned to reduce its holdings by 4.128 million shares. Based on the current stock price, this could realize over 1.1 billion yuan. On January 30th, the company released its 2025 performance forecast, showing a 57% year-on-year decline in revenue and a swing from profit to a net loss attributable to shareholders of 1.1 billion yuan.
Affected by the fund reductions, the stock prices of these related companies declined noticeably in the fourth quarter and continued to diverge in January, failing to form a unified upward momentum. This indicates that a broad-based, sector-wide rising trend, similar to the one seen in the second quarter of last year, is difficult to foresee at the current juncture.
Last year, some equity funds themed around "pharmaceuticals" delivered outstanding results. For instance, the China Universal Hong Kong Stock Connect Pharmaceutical Mixed Initiative Fund A managed by Zheng Ning achieved a return of 82.6% in 2025. In the latest quarterly report, Zheng Ning offered some investment insights. He mentioned that whether the adjustment in the innovative drug sector has ended depends on subsequent earnings delivery, clinical data, and BD progress. He believes that in the next round of market movement, companies capable of generating substantial Free Cash Flow to the Firm will significantly outperform, and his main positions remain in leading Pharma and Biotech companies. Additionally, he suggested that medical devices might see an earnings inflection point in some quarter of 2026, but it belongs to marginal trading, and the risk-reward might not be as favorable as innovative drugs. Conversely, while medical services haven't shown an earnings inflection point, their pricing is extremely cheap, offering a prominent risk-reward ratio.
The Penghua Pharmaceutical Technology Stock Fund A also achieved a 68.2% return in 2025. Its fund manager, Jin Xiaofei, stated that he began gradually adding back to innovative drug positions in December, implying that he believes current innovative drug stocks offer some value. He also pointed out that while the innovative drug sector stood out in 2025, he would gradually shift his focus from the innovative drug sector to other sectors in 2026.
Therefore, investing in innovative drugs requires both medium-to-long-term patience and rational expectations regarding the strength of short-term rebounds.
Judging from the fourth-quarter repositioning of mutual funds on the STAR Market, the pharmaceuticals and biologics sector remains an important direction for their structural increases. Among the top twenty companies ranked by the increase in shareholding percentage (of circulating shares), this sector strongly occupied six spots.
Among them, Biocytogen, which listed in November 2025, was pursued by mutual funds. By the end of last year, 10 funds held the stock, with a holding ratio as high as 21.5%. This new stock has shown strong price performance since listing, nearly doubling in the fourth quarter and rising another 26.5% in January. The company recently released its performance forecast, indicating that its 2025 net profit attributable to shareholders is expected to grow by 3.8 to 4.4 times year-on-year. High-performing stocks will be the focus of mutual fund increases.
Furthermore, mutual funds' preference for Yuandong Biology is also significant. The number of funds holding the stock rose to 37 in the fourth quarter, and the shareholding ratio increased by 4.4 percentage points quarter-on-quarter. Yuandong Biology focuses on the anesthesia and analgesia field, which has high technical barriers and favorable competitive dynamics, and extends into major disease areas like cardiovascular and anti-tumor. The company's core products, anesthetic and analgesic drugs, are mostly clinically essential medications with rigid demand, less affected by economic cycles. Simultaneously, the company has achieved "volume-for-price" strategies, ensuring stable earnings growth. It possesses characteristics of being "defensive" and offering "steady returns." Its net profit margin reached 21.6% in the first three quarters of 2025. At the same time, the company's布局 in innovative drugs provides future growth potential for capital. This means that such companies with "short-term earnings and long-term stories" will gain recognition from capital.
Overall, the bull market in 2026 is expected to be a "high-difficulty game." The complexity of investment operations has significantly increased, placing higher demands on the professional capabilities of individual investors. The key to achieving excess returns lies in: conducting in-depth research based on company fundamentals, closely tracking national policy directions, accurately grasping the core logic of industries, and, on this basis, carefully selecting high-quality individual stocks with solid competitiveness and clear growth certainty.