Last year, QDII funds investing in US stocks made a killing, while QDII funds investing in Hong Kong stocks lost their minds. As the first quarter of this year comes to a close, the performance of QDII funds continues to diverge. According to Choice data, as of March 11th, the disparity in returns of public QDII funds since 2023 has exceeded 130%. The top 30 QDII funds' performance is mostly related to asset allocation in US stocks, while the bottom 30 QDII funds mostly focus on Hong Kong stock themes. This year, the performance of QDII funds continues to diverge. Looking at the equity fund performance rankings for 2023, the average year-to-date return of all QDII funds in the market is 5.67%, with 38 funds seeing gains of over 50%. The majority of these funds are invested in US stocks. According to Wind data, as of April 2nd, 2024, a total of 74 QDII funds have seen net asset value increases of over 10%, with the best performers being those invested in US stocks, Japanese stocks, and oil products. Top performers include Tianhong Global High-end Manufacturing (+20%), Shenzhen Changcheng Nasdaq Technology Market Value-weighted ETF (+17%), ABC New Emerging Market Selection (+16%), GF Global Selected RMB, GF Global Selected USD, GF Dow Jones US Oil, Huaxia Nomura Nikkei 225 ETF, among others. On the other hand, the biggest losers, with losses exceeding 20%, are still primarily Hong Kong stock products. These include Jia Shi Global Innovative Leading, Nanfang Hang Seng Hong Kong-listed Biotechnology ETF, Huaxia Hang Seng Hong Kong-listed Biotechnology ETF, Huitianfu Hang Seng Hong Kong-listed Biotechnology ETF, Boshi Hang Seng Healthcare ETF, Huaxia Hang Seng Hong Kong-listed Biotechnology Connection, Nanfang Hang Seng Hong Kong-listed Biotechnology Connection, GF CSI Hong Kong Innovation Pharmaceutical ETF, Jia Shi Hang Seng Healthcare Index, etc. These QDII funds are focused on Hong Kong stocks in biotechnology, innovative drugs, and healthcare. (Data source: Wind) QDII funds investing in Hong Kong stocks with over 50 billion, on average, show negative annualized returns! Take a longer-term view, among the 20 QDII funds with assets exceeding 50 billion, in the past year, only 5 have shown positive returns, all tracking products related to the Nasdaq 100 and S&P 500, with returns exceeding 32% and annualized returns since inception exceeding 12%. (Data source: Wind) Among the other 15 QDII funds with assets exceeding 50 billion, primarily tracking the Hang Seng Index, Hang Seng Technology Index, Chinese Internet technology stocks, Hang Seng healthcare and innovative drugs, the average decline in the past year exceeds 17%, while the annualized returns since inception are only balanced for the Huaxia Hang Seng ETF, with others showing losses. Top-performing Hong Kong-related QDII funds have chosen the right strategies Among the Hong Kong-related QDII funds that have performed relatively well, the Da Cheng Hong Kong Select Fund has seen a return of over 9% this year. The yield of the Cathay Hang Seng Mainland State-owned Enterprises ETF, the Huaxin Hang Seng Internet Technology Link, and the Penghua Hong Kong-US Internet has been 8.9%; and 8.6%, respectively. The recent 2023 annual report of Da Cheng Hong Kong Select Fund reveals that by the end of 2023, its top holdings were Zhijin Mining, CNOOC, and China Shenhua. Oil, coal, and gold have been standout sectors for Hong Kong stocks this year; while Tencent Holdings, Pinduoduo, and other Internet giants, as well as consumer stocks like MGM, Ctrip, have shown relatively stable performance this year, with some rebounding in March. The performance of these top holdings has contributed to the 9% return of the Da Cheng Hong Kong Select Fund in the first quarter. (Data source: Da Cheng Hong Kong Select 2023 Annual Report) The top ten holdings of the Cathay Hang Seng Mainland State-owned Enterprises ETF include five banks, the three oil companies, China Resources Land, and Shenhua, all high-yield stocks. Recently, during a roadshow, the fund manager of Da Cheng Hong Kong Select, Bai Yang, discussed his views on the Hong Kong stock market and trading strategies. He indicated that the Hong Kong stock market shares fundamentals with the A-share market, but liquidity is currently different. He advised that when the US ten-year bond yield rises by 200 basis points compared to China, and the US dollar interest rate cut cycle becomes clear, investors can consider investing in Hong Kong stocks. He pointed out that strategically, there could be more marginal liquidity improvement from the US dollar side, while the advantage of Hong Kong stocks lies in higher odds, which is a major logic for this year. Tactically, apart from industry rotation and style timing, there are avenues to consider in underlying non-RMB assets, overseas mapping of US stocks, and other areas. Discussing how to generate good returns using a dumbbell strategy, he emphasized two aspects. Firstly, in terms of deep value, the high-yield strategy has performed well in the past, but it requires a strict selection of high-yield indices, understanding whether the high yield is cyclical or one-time, assessing sustainability, industry status, and more. Secondly, in terms of high-quality growth, based on performance since 2016, compared to the Hang Seng Technology Index, the high-yield strategy has shown minimal volatility, eventually outperforming the Hang Seng Technology Index; however, the Hang Seng Technology Index has shown greater volatility but also outperformed the Hang Seng Index. This indicates that both ends can bring returns, but the right choices need to be made at the right time, and growth may require carefully selected stocks and moderate timing for good returns. The stocks currently held have been selected after thorough data analysis and on-site research. Overall, the dumbbell strategy is being reinforced in two areas: enhancing "macro analysis for sector allocation" in deep value and "selecting stocks, moderate timing" in high-quality growth. Bai Yang stated that the Hong Kong stock market is easy to learn but difficult to master since its fundamentals come from the mainland, its liquidity is influenced by the US dollar, investors are widespread, and information asymmetry is severe. Delving deep into the market and understanding information could lead to excess returns.Divergence in future market views emerges, Hong Kong stocks may welcome capital inflows.At the current point in time, there is a divergence in views among institutions regarding the future market outlook for US and Japanese stocks. Some believe that funds will flow out of overvalued assets and turn towards undervalued assets such as Hong Kong stocks, while others believe that the strong performance of US and Japanese stocks will continue. Yang Ao, Chief China Market Analyst at Fortu, stated that global funds have continued to flow into markets that have repeatedly hit new highs since last year, including US and Japanese stocks. However, since March, the flow of funds has started to slow down. Analysts at Bank of America stated that US investors' sentiment towards Chinese stocks has shifted from "liking to buy low-priced stocks" in 2020-21, to "disliking, they don't work" in the third quarter of 2022-23, to "my time/money is better spent elsewhere" in the fourth quarter of 2023, and most recently to "tell me what's happening". Many Wall Street "China experts" have shifted their focus to covering Japan and India's artificial intelligence supply chains. Among the New York investors contacted by Bank of America, nearly half do not hold positions in Chinese stocks. Nevertheless, investor sentiment has slightly improved, especially among emerging market funds, with fund managers believing that the worst period ended in January and are now trying to buy at low levels.