Author: Yuanchuan Investment Review

When fewer and fewer people are chatting in an investment discussion group, simply posting a net asset value curve chart of Wu Yuefeng can instantly liven up the atmosphere.

This time, the net asset value of Jiayue Yuefeng Investment Genesis Fund not only returned to above-average levels but also reached a new historical high. Last year, Wu Yuefeng managed to bring the net asset value back above 30 cents, thinking she had climbed out of the abyss, but it quickly fell back to over 50 cents. Until May 8th of this year, the net asset value rose by 167.54% in nearly a month, and Wu Yuefeng is back.

Judging from the holdings in the product report, the total equity position reached 100%, with 35% in AI computing power infrastructure and 20% in storage chips, which constituted the main driving force for the surge in net value. AH shares of optical modules and PCB accounted for 5%, and Wu Yuefeng almost bet all of his money on the AI ​​computing power industry chain [1].

Over the past year, a slight shift in mindset—buying into optical communication and storage instead of defensively holding onto liquor stocks—has been enough to recover losses, no matter how poorly one performed or how deep the losses were. Being at the forefront of optical technology and close to the core of semiconductors is the biggest secret to wealth this year.

Funds like Yuanlesheng, Shiva, and Qushi, which enjoyed immense success in 2020-2021 with their multi-billion yuan discretionary funds, have seen their net asset value surge in the past year, surpassing previous historical highs. Ruiyuan's fund, managed by Mr. Fu, has quietly doubled its value in the past year, reaching a new all-time high. An even more remarkable private equity product, Zhunjin Zhizhan No. 1, has increased fivefold this year and fiftyfold in less than five years.

What is Thunder Net Asset Value?

There's also Yao Jinghe Private Equity, rumored to have made astronomical sums through storage and CPO; Leopold, a former OpenAI employee who grew his hedge fund from $225 million to $5.5 billion in a year; and Hefei State-owned Assets, soon to be crowned "top venture capital firm" again due to Changxin's IPO. It seems like everyone is making money from "Xinguang Lithium," while those without can only watch the prices rise and suffer from prefrontal cortex damage from the anxiety of watching various financial crises unfold.

Those who are currently investing in Hengke and value stocks may have a question in mind: even a KTV hostess in Shanghai has made 18 million yuan, so why hasn't the market seen a clear high and low?

Silicon-based cows, carbon-based bears

There's something strange about this market trend: no matter how crowded the AI ​​industry chain is, it hasn't fallen.

In the first quarter of this year, the allocation ratio of actively managed equity funds to AI hardware was 31.5%, with an overweight ratio of 17.7%. Compared with the core track in history, although it did not exceed the Maotai Index in those years, it has exceeded the peak of the Ning portfolio [2].

Liu Chenming of GF Securities also pointed out that last year, the fund's TMT holdings exceeded 40%, and the electronics holdings exceeded 20% for more than a year. In terms of trading congestion, the A-share TMT trading volume has already exceeded the 40% threshold of the previous industrial cycle.

Despite the crowding, the Philadelphia Semiconductor Index has risen 54% since April, and the STAR Market Chip Index has risen 60%. Not to mention Mr. Fu, who heavily invested in Zhongji Xuchuang in the first quarter, even 18 fixed-income+ companies that put more than 10% of their portfolios in semiconductors have generated a surge in net asset value.

Another strange thing about this round of market activity is that no matter how much Hengke falls, it can't be helped up.

Two months have passed since Xia Junjie said, "Hengke may have overshot its mark," and Hengke still shows no signs of improvement, like a dead fish lying flat on ice at a seafood stall with its eyes wide open.

Hengke's underperformance has its inevitable reasons, just as Liu Xiaolong of Juming responded to why he cleared out all Hong Kong-listed technology stocks: 1) the potential impact of AI on internet business models; 2) Hong Kong stocks are more affected by the marginal tightening of overseas liquidity; 3) the large amount of funds raised through IPOs in 25 years has consumed capital.

Ultimately, the current landscape remains one of winner-takes-all and homogeneous competition in the long tail. Hongshang Asset Management believes that the involutionary strategy of "free" and "low-price" solutions in the consumer market has led to the valuation dilemma for Chinese AI companies.

When monetization capabilities are questioned, even the AI ​​businesses of Tencent and Alibaba struggle to gain recognition from the capital market. Although Alibaba's Qianwen and other models have begun experimenting with closed-source, paid models, the results have been unsatisfactory. This is the core reason why the market has recently lost patience with Tencent and Alibaba's AI narratives, and why their valuations lack the momentum for expansion.

The most perplexing aspect of this market trend is that consumer fund managers are starting to shift their focus to chasing short-term gains.

A while ago, I was thinking of buying consumer funds at the bottom and I thought the name "Bosera Women's Consumption Theme" suited my taste. When I looked at the top ten holdings, Crystal Optoelectronics and InnoLight Technology were the first two companies I saw.

Renowned veteran consumer strategists Tong Xun and Xiao Nan have also gradually aligned themselves with the prevailing trends. After changing their mindset, Tong Xun's net asset value has seen a V-shaped reversal since April; after the third quarter of last year, the performance of E Fund Ruiheng, managed by Xiao Nan, has gradually improved, and consequently, the performance gap between him and his fellow alumnus Zhang Kun, who is mired in the baijiu (Chinese liquor) quagmire, has widened.

These bizarre phenomena are reminiscent of the peak of the previous round of subjective bullishness in 2020-2021.

The main players back then were fund managers born in the 1960s who had a strong belief in "monopoly barriers + sustainable operation" and were relatively overweight in stocks like Kweichow Moutai and Alibaba. In contrast, the main players this time are those born in the 1980s who have an extreme faith in hard technology and are relatively overweight in stocks like InnoLight Technology and Cambricon. Most of them are encountering the 4200-point mark for the first time since they started managing money.

If it weren't for AI, subjective long positions, which have been suppressed by quantitative strategies for many years, haven't had such a triumphant moment in a long time. In the past year, 12 public funds have achieved returns exceeding 300%; in the past three months, the Huofuniu Private Equity Subjective Long Selection Index has surpassed the CSI 500 Index Growth Selection Index, becoming the strongest strategy index.

Ren Zeping said this is a once-in-a-decade bull market, a bull market fueled by policy, technology, and liquidity, combined with a confidence-driven bull market. I think a more accurate way to put it is that any market with confidence in silicon-based technologies is a bull market, while any attempt to buy the dip in carbon-based technologies is a bear market.

Offense or defense?

For many fund managers, the current situation is like Flick leading this impoverished Barcelona team; it seems there are no other options.

Flick's tactics are to attack as a form of defense, pressing high up the pitch to control the ball in the opponent's half and reduce the opponent's chances of having a direct shot on their goal. If they retreat and sit deep, relying on Barcelona's weak defense will only lead to a more humiliating defeat. Similarly, even if you stay in the defensive positions of Hengke and Consumer stocks, prices will still fall when the bull market ends, but at least you can accumulate profit margins by betting on AI in attack.

Moreover, under extreme FOMO, the emotions on the liability side are becoming increasingly difficult to manage. After all, clients can make money by simply chasing the market and buying stocks at will. They see their friends' subjective investments all showing soaring net asset values. Why would they spend time and management fees listening to you talk about value investing and then miss out on the few opportunities that come with it?

Since this is a rapidly advancing train of the times, should those who haven't boarded catch up? Should those already on board get off? These are questions that all managers must confront. Just as the capital expenditures of the five major US tech giants have been increased to $720 billion, no one wants to be left behind by the times.

Wang Zhongyuan, founder of Zirui Xing Investment, who entered the industry in 1993, personally experienced the "327" treasury bond incident in 1995 and witnessed the dot-com bubble of 1999. He told Yuanchuan a true story:

Stanley Druckenmiller shorted tech stocks in the first half of 1999, heavily invested in them at the end of the year, and sold all his holdings in January 2000 to avoid the market peak. However, in March 2000, tech stocks surged again, and he couldn't resist going all in, resulting in a loss of 18% in just one and a half months.

"What does this story illustrate? Even the world's most recognized top traders can make irrational decisions when faced with FOMO (Fear of Missing Out). So, how many of today's fund managers chasing the light are better than Druckenmiller?"

Interestingly, Zeyuan Investment posted a picture on its official WeChat account: "Semiconductors topped the May global transaction rankings."

They advised investors to lower their expectations for Zeyuan, noting that the current situation resembles the peak of the dot-com bubble. They emphasized that investors should not abandon traditional value investing to chase the dot-com bubble, and that they would "never surrender" no matter how much the dot-com bubble inflated. They quoted a saying: "The stock market is a place where dreams and money are exchanged. Those who sell their dreams get money, while those who pay money are mostly trapped in the stock market, waiting for their dreams."

Compared to Zirui Xing and Zeyuan, Jingyi Investment put it more bluntly—the underlying model of this AI revolution, as well as the most crucial infrastructure and hardware, are mostly in the hands of leading US tech giants across the ocean. The current AI hype in the A-share market has far less fundamental support than the new energy sector did in the past.

"In 2021, most photovoltaic and lithium battery companies experienced a real surge in performance and a rapid increase in penetration rate. However, many so-called 'AI companies' that have been hyped up to a market value of hundreds of billions in the A-share market today have not even experienced the profit surge that new energy companies did back then."

Undeniably, some discretionary private equity firms weren't gambling; they withstood the short-selling attack following Michael Burry's $379 paid article last year, recognizing that the core theme of AI investment was AI hardware. However, as the hype spread from optical modules to sub-sectors like storage, CPUs, electronic fabrics, and optical fibers, the room for high-low diversification within these sectors is narrowing, and the potential cost of making mistakes is also rising.

With the 30-year US Treasury yield exceeding 5%, the current macroeconomic situation for chasing AI stocks is different from when Michael Burry called it a bubble last year.

Take Flick's Barcelona, ​​for example. They had a smooth season, frequently racking up spectacular scores. But in the Champions League quarterfinals against Atletico Madrid, a team known for its counter-attacks, they persisted with their high-pressing attack, leading to frequent defensive retreats that resulted in two red cards for their defenders, ultimately costing them the game.

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Even when people still believed in carbon-based systems, ThunderNet Asset Value did emerge.

During the last bull market in baijiu (Chinese liquor) stocks, Lin Yuan's performance increased by 150% from 2020 to June 2021. However, it subsequently experienced a five-year period of fluctuating decline, and now only a little over 20% return remains. The companies Zhengyuan and Chongji, which heavily invested in photovoltaic new energy back then, are now memories that financial advisors are reluctant to recall.

Take Shifeng Asset Management, which previously boasted a net asset value of 30 billion yuan at its peak, as an example. Its attempt to transform into a quantitative approach failed to reverse the downward trend, and its scale has now shrunk to 2-5 billion yuan. It was recently learned that it has moved from Lujiazui Century Financial Plaza to Yuanshen Financial Building, where the rent is cheaper.

These things may seem a bit distant, but when gold prices hit a high point at the beginning of the year, the gold private equity firm that shouted "Hold on tight" three times is probably not so easy to forget.

Sometimes I ask people in the distribution channels why they are optimistic about a certain private equity firm, and the answers are nothing more than three points: they left big companies to start their own businesses, their scale is still small but their strategies are still effective, and the most important one is that their net asset value curve looks good.

Behind the high net asset value of Thunder Funds lies the amplified returns from concentrated holdings and even leverage. Simply using performance sharpness as a buying criterion will likely result in buying a mediocre product, merely capturing the past strong market trend. The lesson of buying on dips based on chart patterns has been repeated time and again.

Qinyuan Wu Dingwen once shared: "Investment requires acceptance of the underlying logic, which means acceptance of the transaction, the value, and the team, rather than acceptance of making money." If you only accept making money, you will most likely be unable to escape the cycle of buying whatever is hot, buying whatever is hot, and then buying whatever is hot and losing money.