"Chasing Rallies Actively" and "Invisible Disguise" — Why Are These Thematic Funds "Misrepresenting Their Products"?

Reprinted from: China Economic Herald

Shortly after the start of 2026, complaints about fund “style drift” have frequently appeared on major sales platforms. The industry issue of “style drift” in funds has existed for a long time, and some funds, driven by profit motives, are becoming more and more intense. Journalists tracking the situation found that by the end of 2025, among the 13 funds identified as “style drift” by third-party fund evaluation agency Ji’an Jinxin in Q2 2025, six funds not only failed to correct their drift, but some even showed a new trend of “AI grouping” in Q4, forming a “second drift.”

Many industry insiders believe that under the strong regulatory background of the China Securities Regulatory Commission’s release of the “Guidelines for Performance Benchmarks of Publicly Offered Securities Investment Funds,” which took effect on March 1, the industry’s longstanding issues will gradually be corrected, promoting a return to the essence of fiduciary duty.

“The Second Drift” Puzzle: From “Passive Defense” to “Active Chase”

At the beginning of 2026, “style drift” seems to have become a frequently mentioned complaint about some funds. On Tiantian Fund, Huabao Nasdaq Select was heavily invested in NIO, which is not listed on Nasdaq, and missed out on the US stock rally, leading to strong dissatisfaction among investors; even more rarely, on January 13, the Shanghai Hongkou Court held a hearing for a case where investors simultaneously sued the fund company and fund managers. The fund involved, Guotou Ruixin Jinbao, shifted from heavy holdings in new energy to AI technology stocks, raising serious questions about style drift.

According to the “2025 Q2 Public Fund Rating Report” previously released by Ji’an Jinxin, 13 funds were identified as having style drift issues. Journalists tracked these 13 funds and found that by the end of 2025, six still exhibited style drift, with some even experiencing a “second drift.”

Pan Yue, Illustration

The China Post Health & Entertainment Flexible Allocation Hybrid Fund is a typical example of “second drift.” According to Ji’an Jinxin’s Q2 2025 rating, the fund was identified as style drifting due to heavy holdings in AI computing hardware. However, quarterly reports showed that the fund not only failed to return to the health and entertainment theme but continued to heavily invest in high-profile AI hardware and new energy stocks like Tianci Materials, Industrial Fuyuan, and Huasheng Lithium, with a position ratio as high as 37.8%.

Even more, fund manager Gong Zheng explicitly stated in the quarterly report, “Considering the significant gains in the computing power and lithium battery sectors in 2025, we will appropriately control positions in Q1 2026 and wait for new opportunities to increase holdings.”

A related person from a Shanghai fund evaluation agency said that early “style drift” mainly involved heavy holdings in low-valuation sectors like banking and electricity, which was a defensive deviation. Now, the collective shift toward AI computing, new energy, and innovative drugs is essentially another form of thematic betrayal. The danger of this “second drift” lies in the fact that fund managers are not unaware of their drift but knowingly choose to “go along with it” for short-term performance rankings despite violating regulations.

Data from Tiantian Fund shows that the China Post Health & Entertainment Flexible Allocation Hybrid Fund achieved an 83.52% return in 2025, ranking high among peers. “Although some drifting funds gained considerable profits from heavy AI holdings in 2025, these gains are based on breach of contract. Once market styles shift, drifting funds will face a dilemma of double losses: missing the rebound of the original theme sectors and standing at high positions in hot tracks,” the person added.

BaoYing Modern Service Industry Hybrid Fund has demonstrated an advanced version of “second drift.” The fund’s contract clearly requires focusing on productive and residential services, but Q2 2025 data showed it was heavily invested in the pharmaceutical sector; quarterly reports indicated further concentration in Cinda Biotech, Kelun Botech, and Hengrui Medicine, with a position ratio as high as 65%. Fund manager Yao Yi explicitly stated in the quarterly report, “Although the innovative drug sector continued to fluctuate in Q4, we will continue strategic allocation in this sector.”

The “second drift” of the Jiashi Green Theme Stock Initiating Fund shows some divergence. According to market understanding, this fund should focus on environmental protection, low-carbon, and new energy industries. However, Q2 2025 data showed it was heavily invested in chip stocks, focusing on the semiconductor supply chain, with a position ratio of 71%. The Q4 2025 report revealed that fund manager Cai Chengfeng still held significant positions in Lanqi Technology, GigaDevice, and other semiconductor stocks, with holdings increasing to 82.5%.

A related person from Jiashi Fund said that, in fact, there are differing opinions on whether Jiashi Green Theme Fund has drifted, mainly because the market’s definition of “green” varies. The fund’s contract clearly defines “green theme” as focusing on sectors benefiting from China’s economic restructuring and industrial upgrading under the guidance of the new development philosophy of innovation, coordination, green development, openness, and sharing. It emphasizes high-quality companies with core competitive advantages and sustainable growth potential.

“This fund’s investment scope mainly includes two areas: one is green low-carbon transformation, including new energy, new materials, smart vehicles, energy conservation and environmental protection, industrial internet, IoT, biomedicine, etc.; the other is green low-carbon technology R&D and application, including next-generation information technology, artificial intelligence, biotechnology, high-end equipment, and other sectors integrated with green low-carbon industries,” the person explained. According to Shenwan Hongyuan’s industry classification, the listed companies related to the green theme mainly distribute across communications, computers, electronics, machinery, power equipment, transportation, non-ferrous metals, basic chemicals, utilities, environmental protection, automotive, and biomedicine.

Varieties of Drift: From “Deep Drift” to “Invisible Disguise”

Besides the above “second drift” cases, three other funds show different aspects of style drift, forming a chaotic picture of “mismatch between claims and reality.”

Taxin Modern Service Industry Hybrid is a typical example of “deep drift.” Its name clearly indicates a focus on commerce, leisure services, transportation, and other modern service industries, but Q2 2025 data shows it was heavily invested in lithium mining stocks; quarterly reports show its top nine holdings are still Tianci Materials, Yahua Group, Tianhua New Energy, etc., which are far from the modern service theme.

Beixin Ruifeng Expanse Growth Theme Flexible Allocation faces a “name mismatch” and liquidation dilemma. Its name emphasizes “expansion,” which should focus on M&A and growth expansion, but Q2 2025 data shows it was heavily invested in power stocks; quarterly reports show its top ten holdings are still Guiguan Power, Huaneng Hydropower, Zijin Mining, and other utilities and non-ferrous metals. Currently, the fund’s size is only 0.16 billion yuan, on the verge of liquidation, with style drift and risk of closure coexisting.

More covert is Jinxin Intelligent China 2025’s “invisible drift.” In Q2 2025, it was identified as style drifting due to heavy holdings in bank stocks; quarterly reports show that although it added two semiconductor stocks, its top eight holdings remain concentrated in banking and insurance sectors, including ICBC, Industrial Bank, with a combined holding ratio of 42.85%. Fund manager Tan Jiajun stated in the quarterly report that the allocation was in “financial services intelligence,” but in reality, it remains a “repackaging” of traditional bank stocks.

It is worth noting that not all funds choose to “go along with” the drift. China Merchants Bank Innovation Leading Hybrid, although identified as style drifting due to heavy holdings in bank and power stocks in Q2 2025, has, according to the quarterly report, largely adjusted its top ten holdings to tech growth stocks like CATL, InnoLux, and Tianci Materials, achieving correction. This stands in stark contrast to the “second drift” funds.

Strong Regulatory “Stranglehold”: Implementation of New Rules and Industry Reshaping

Amid chaos, regulators are taking strong action. The governance of fund “style drift” has entered a phase of “strict constraints.”

On March 1, 2026, the China Securities Regulatory Commission officially implemented the “Guidelines for Performance Benchmarks of Publicly Offered Securities Investment Funds.” This document, regarded by the industry as “reshaping the industry’s investment culture,” marks the industry’s formal departure from the previous “light benchmarks, heavy rankings” inertia.

It is required that the investment directions, strategies, and risk-return characteristics specified in the fund contracts must be “three-matched” with the benchmarks; for active equity funds with long-term performance significantly below the benchmarks, the performance-based compensation of relevant fund managers should be substantially reduced.

Meanwhile, for existing funds, a 12-month transition period has been set for rectification. This means that “style drift” products, including the six funds mentioned above, must correct their drift before March 2027, or face stricter regulatory measures.

Many industry insiders believe that when “Health & Entertainment” funds can openly hold AI computing stocks, it not only damages individual investors’ rights but also undermines the fundamental trust of the public fund industry in “trusteeship and client management.” With the implementation of the new performance benchmark rules, the public fund industry is undergoing a profound transformation from “ranking battles” to “contract adherence.” This is not only the best protection for financial consumers’ rights but also the only way for high-quality industry development. In the future, under the “tightening” of strong regulation, fund managers attempting to chase short-term gains through “second drift” will eventually realize that compliance is the longest shortcut, and contractual integrity is the greatest moat.