Promoting Value Investing, Rejecting High Turnover in Mutual Funds
The performance ranking of public mutual funds often attracts high attention from the market, and this year is no exception. According to statistics, as of September 19th this year, a significant number of high turnover rate fund products rank at the bottom in the fund performance ranking. Personally, I believe that public mutual funds should advocate more for the investment philosophy of value investment, rational investment, and long-term investment, and should firmly say "no" to high turnover rate behavior.
"Stock God" Warren Buffett usually holds stocks for several years, even tens of years or longer time periods, but similar phenomena are very rare in the domestic public mutual fund industry. On the contrary, there are quite a few high turnover rate fund products in the domestic public mutual fund industry. For example, data from a certain fund website shows that the turnover rate of Pioneer's flexible allocation mixed fund was as high as 1285.87% in the first half of this year. As of September 19th, the return of the fund's Class A shares this year was -37.79%, ranking 2242nd among 2264 similar funds, which is equivalent to being at the bottom. The turnover rate of Jiahe Ruijin Mixed Initiated was even higher at 3775%, and as of September 19th, the return of the fund's Class A shares this year was -23.29%, ranking 3501st among 4106 similar funds, also relatively behind. In addition, many public mutual fund products such as Donghai Consumption Zhenxuan Mixed Initiated, Changjiang Changhong Mixed, and Huaxia Zhisheng Pioneer Stock all exhibit characteristics of high turnover rate and low performance ranking.
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The Shanghai and Shenzhen stock markets have often been interpreted as a "speculative market", which is not unrelated to the strong speculative atmosphere in the market. Among them, retail investors, due to their relatively small capital, coupled with shortcomings in stock knowledge and investment decision-making capabilities, are often more keen on frequently entering and exiting the market to earn price differences. Therefore, the high turnover rate of retail investors is due to both their own reasons and the influence of the market environment.
In recent years, the Shanghai and Shenzhen markets have continued to be sluggish, and the "wealth effect" is relatively rare. Moreover, even during periods when market hotspots appear, they often come and go quickly like a gust of wind, which objectively increases the difficulty of long-term layout for public mutual fund products. This has also given rise to the prosperity rotation investment strategy of public mutual fund managers. When an industry or a sector has a high prosperity, the relevant funds will buy heavily. Once the prosperity passes, they will sell in large quantities. This is also a major reason for the high turnover rate of some funds, but problems also arise accordingly.
Public mutual funds, whether in terms of the role they play, industry nature, market position, and the role they play in the market, are obviously different from retail investors. However, some public mutual products, with their extremely high turnover rate, not only far surpass retail investors but also actually have a multifaceted negative impact.
Firstly, the high turnover rate of public mutual funds contradicts the investment philosophy of value investment, rational investment, and long-term investment advocated by regulatory authorities. In response to the rampant speculation in the Shanghai and Shenzhen markets, regulatory authorities have been vigorously advocating the above three investment philosophies. As public mutual products, they should be advocates, believers, and firm executors of the above three investment philosophies. However, the high turnover rate of a few fund products indicates that there are also those who act on their own among public mutual products implementing the three investment philosophies.
Secondly, a high turnover rate will increase transaction costs, intensify market fluctuations, and amplify market investment risks. Behind the high turnover rate is actually frequent trading, and the increase in transaction costs is already predetermined. Moreover, due to the large scale of public mutual fund products, the frequent entry and exit of huge funds in the market will inevitably intensify the fluctuations of individual stocks, thereby amplifying the market's investment risks, which is undoubtedly worth discussing.
In addition, the high turnover rate of public mutual funds is also not conducive to safeguarding the interests of holders. Essentially, public mutual funds are actually "workers", and managing money on behalf of others is to "work" for the holders. Therefore, the concept of safeguarding the interests of holders, public mutual funds need to place it in the primary position. Frequent trading, high turnover rate, may ultimately harm the interests of the holders.
Based on this, I personally believe that for public mutual products, in addition to performance ranking, it is also necessary to rank the annual turnover rate. I suggest that for fund companies whose products generally have a turnover rate higher than the industry average, certain restrictions can be imposed on the issuance of new products and participation in innovative product (business) pilot programs. Moreover, for fund managers with high turnover rates in the products they manage, fund companies should also limit the number of fund products they manage to prevent the relevant fund managers from using high turnover rates to implement interest transfer behavior.
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