Against a backdrop of overall pressure on bond fund performance, convertible bond funds are breaking stereotypes about bonds and bond funds with their outstanding results. As the equity-like characteristics of convertible bonds gradually return, the CSI Convertible Bond Index has risen approximately 23% over the past year, nearly matching the gains of the Shanghai Composite Index during the same period. Public fund institutions are increasingly excelling in their investments within the convertible bond market.
Simultaneously, convertible bond funds are enhancing their return flexibility through refined operations, focusing their holdings and equity allocations on hot sectors such as technology, defense, and non-ferrous metals. A number of popular bonds have delivered multi-bagger returns, becoming key engines driving the performance elasticity of these funds.
The strong performance of convertible bond funds is gradually overturning investors' traditional view that bond funds offer low returns, especially in a market environment where equities are stronger than bonds. Boosted by the continued bull market in convertibles, the returns of convertible bond funds continued their positive trend from 2025 into 2026.
Reviewing the 2025 fund performance rankings, actively managed equity funds generally performed strongly, while bond fund performance was mostly weak, with convertible bond funds being a notable exception. Wind data shows that funds such as Southern Changyuan Convertible Bond, China Post & Jinyin Enhanced Returns, and Bosera Convertible Bond Enhanced achieved returns of 48.77%, 35.89%, and 35.24% respectively in 2025, marking commendable performance.
As of January 30, the high-return characteristic of convertible bond funds became even more pronounced. Looking at the one-year cumulative returns, Southern Changyuan Convertible Bond led with a 63.74% return. Funds like ChinaAMC Convertible Bond, Bosera Convertible Bond Enhanced, Huashang Convertible Bond, MinSheng Enhanced Returns, and Penghua Convertible Bond followed with returns of 49.21%, 45.71%, 45.03%, 42.41%, and 42.22% respectively. This level of return not only significantly surpasses some technology-themed funds over the same period but also completely reverses the ingrained impression that bond funds lack return flexibility.
According to public fund Q4 2025 reports, there are 38 actively managed convertible bond funds in the market, with a combined size of approximately 58.1 billion yuan.
The impressive returns of convertible bond funds can be attributed both to the overall bull market for convertibles and the sector characteristics of the funds' holdings. In terms of market index performance, the CSI Convertible Bond Index has gained about 23% over the past year, approximately 30% over three years, and has accumulated gains exceeding 86% since 2019, demonstrating robust long-term upward momentum.
Against this backdrop, some convertible bond varieties identified by fund managers have exhibited extremely strong return elasticity, performing on par with leading technology stocks in the market. An analysis of the Q4 2025 bond holdings report of the leading Southern Changyuan Convertible Bond fund reveals the core logic behind its outperformance. Ruichuang Convertible Bond, belonging to the defense semiconductor sector, was its fourth-largest bond holding with a portfolio weight of 4.54%. Dazhong Convertible Bond, with a resources industry background, was the fifth-largest holding. Between January 1, 2025, and January 30, 2026, these two bonds surged by 182% and 213% respectively, acting as key engines driving the fund's performance growth.
The performance growth of ChinaAMC Convertible Bond Fund similarly relied on the contribution of popular convertibles. The fund achieved a 49% return over the past year. Its Q4 2025 report showed that Weice Convertible Bond, a semiconductor-related issue, was its fifth-largest bond holding. This bond more than doubled in value over approximately the past six months, significantly boosting the fund's overall returns.
Beyond precise positioning in convertible bond varieties, these funds also concentrated their limited equity allocations on high-elasticity sectors, further amplifying product returns. Taking the top four convertible bond funds by one-year return as an example, the equity allocation percentages for Southern Changyuan Convertible Bond, ChinaAMC Convertible Bond, Bosera Convertible Bond, and Huashang Convertible Bond were 16.56%, 23.73%, 17.98%, and 31.61% respectively. Although these equity allocations are relatively modest, fund managers deployed these funds entirely into high-growth sectors like semiconductors, defense, and non-ferrous metals. This strategy of focusing on hot sectors allowed the limited equity exposure to contribute positively to fund performance.
Regarding the short-term sustainability of the convertible bond market rally, several bond fund managers express optimism, believing that hot sectors still offer good structural investment opportunities. Li Xiaotian, fund manager of Ping An Convertible Bond, analyzed that the current convertible bond market is trending upwards with fluctuations. Looking at the supply-demand dynamics for 2026-2027, convertible bond supply is expected to remain relatively tight. Coupled with a low-interest-rate environment, investor demand for allocating to convertible assets should stay strong. Multiple factors support sustained high valuations for convertibles. In terms of investment strategy, he maintains a barbell allocation approach while increasing the allocation proportion to the technology and growth sectors to actively capture structural opportunities.
Liu Wenliang, fund manager of Southern Changyuan Convertible Bond, stated that since the beginning of 2026, market liquidity has remained ample, positive catalysts in the technology sector have increased, and expectations for profit recovery in cyclical sectors are difficult to disprove in the short term. A spring rally is expected to gradually unfold, with thematic rotations being an important component. The current market style favors convertible bonds, allowing them to leverage their hybrid equity-debt advantages. In portfolio management, he will actively seize opportunities presented by the spring rally, focusing on sectors like technology, new energy, defense, innovative drugs, non-ferrous metals, and chemicals. For convertible bond investments, the focus will be on identifying opportunities among bonds with low premium rates and strong momentum.
Wang Shiqian, fund manager of Penghua Convertible Bond, pointed out that although the convertible bond market may experience some volatility in line with the stock market, thanks to the relatively tight supply situation, convertible bond valuations resumed their upward trend after a phase of decline, and the market rebounded in December 2025 following the stock market. Looking ahead to Q1 2026, new supply in the convertible bond market is still expected to be limited, and valuations will likely remain high. Convertible bonds could potentially rise driven by the stock market.