On July 18, Guotai Fund manager Liu Gesong released the second quarter report for the year on his fund products. Looking at the second quarter report of the Guotai Small Cap Growth Hybrid Securities Investment Fund (LOF) under his management, as of the reporting period, the net asset value growth rate for Class A fund shares was -7.34%, for Class C fund shares it was -7.44%, and the benchmark yield for the same period was -7.98%. Liu Gesong stated that they had added positions in the military industry and semiconductor equipment industry at low levels, while maintaining the existing allocation levels for assets with global comparative advantages such as the photovoltaic industry and its supply chain, lithium batteries, and new energy vehicles. The report mentioned the photovoltaic component industry, one of the fund's major holdings, as an example. Despite high demand growth, the bidding prices for photovoltaic components had been continuously decreasing from the fourth quarter of 2023 to the first half of 2024, with a decline exceeding market expectations. This led to many companies in the industry experiencing significant losses in the first quarter. The intensified internal competition, as companies from other industries entered the photovoltaic industry without competitive advantages in production technology, costs, and overseas channels, exacerbated the competition within the industry. Additionally, some countries used tariff measures due to the prominent competitive advantages of these industries, causing the valuation of leading companies to be temporarily under pressure, impacting the sector's performance. The report also discussed the challenges faced by the photovoltaic industry, like internal competition intensification and the rise of external trade protectionism, which are somewhat representative of advantage manufacturing industries reliant on exports. The fund, heavily invested in this direction, had performed poorly in the past two years. The prevailing imbalances had led to a decrease in the prosperity expectations of companies in the advantage manufacturing industry, and a strong initial response in asset prices. However, considering the current situation, one should think whether these imbalances are temporary or long-term. Will China's comparative advantage in manufacturing be replaced? In a positive light, after a significant drop in product prices, the industry had begun optimizing. Companies without competitive advantages were accelerating their exit, while leading companies were focusing on intellectual property protection to defend their legitimate rights and consolidate their competitive advantages. Liu Gesong believed that bidding below cost is not sustainable, and with industry supply optimizing, global comparative advantage manufacturing industries would find new growth spaces. From the perspective of R&D reserves and advantages in the upstream and downstream supply chain, China's long-term comparative advantage in manufacturing remains strong. Once short-term imbalances are resolved, many industries will develop more steadily, healthily, and orderly. Currently, the valuation of global comparative advantage manufacturing industries is historically low, and with the industry re-entering a constructive development stage, confidence in the industry's market performance is held. In terms of portfolio management, the fund will continue to adhere to industry-based long-term investments that align with its investment logic, aiming to share the dividends of corporate growth. Although the fund's investment style had underperformed investor expectations in the past two years, confidence in holdings is still held. China has a large number of world-class companies and outstanding entrepreneurs in the manufacturing field, whose vision, innovation, and team capabilities will continue to lead industry development. As the industry enters a new phase of development, the situation of under pressure valuations is expected to change. Looking at the fund's top ten holdings, the first and second largest holdings are still Salus (601127.SH) and Shengbang shares (300661.SZ), with no change in stakes for Salus compared to the first quarter, although there was a slight decrease in holdings for Shengbang shares, their net value proportions had both risen to over 10%. In addition, Jindong Technology (300763.SZ) and JA Solar Technology (002459.SZ) had exited the top ten holdings in the first quarter, with corresponding new entries Huaqin Technology (688281.SH) and Hongyuan Electronics (603267.SH) appearing in the top ten holdings.