How Are the Funds That Bet on AI in the First Half of the Year Performing Now?
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In the early hours of November 7, Beijing time, OpenAI launched the latest version of ChatGPT, GPT-4 Turbo, and announced plans to introduce an AI platform where users can create their own GPTs.
The news had an immediate impact on the stock market, with the AI sector performing strongly and related ETFs closing higher today. The AI ETF rose by 1.71%, the AI Artificial Intelligence ETF increased by 1.82%, and the ChatGPT Index climbed 1.71%. Stocks such as Cambricon and VeriSilicon also followed the upward trend.
After a long period of dormancy, AI has been reawakened. So, how are the funds that bet on AI in the first half of the year faring now?
Nuo De New Life exemplifies the outcome of going all-in on AI this year: it was the mid-year champion in the first half but has now fallen to the bottom of the rankings. By the end of Q2, Nuo De New Life A achieved a return of 75.07%, making it the top-performing equity fund for the first half of the year. However, in the second half, as AI-related stocks gradually corrected, the fund's net value dropped by 37.24%, becoming the worst-performing mixed fund in the latter half of the year. Its year-to-date return stands at just 5.14%, with most of its first-half gains wiped out.
Regarding the reasons for the gains and losses, fund manager Zhou Jiansheng addressed them in quarterly reports. In the mid-year report, Zhou explained the first half's outperformance: "At a critical moment, we timely shifted from the 'IT innovation+' theme to 'AI+,' becoming one of the earliest public funds to invest in the ChatGPT industry chain. This allowed us to capture the market trend and translate our industry insights into investment returns."
Similarly, in response to the significant drawdown in Q3, Zhou provided an explanation. "In Q3, we faced a 'K-shaped' market trend—while AI-related stocks in the A-share market plummeted, the latest quarterly earnings and guidance from overseas GPU leaders far exceeded expectations." Despite the poor performance of the AI sector in Q3, Zhou remains optimistic about the future, citing positive signals from the market, policy, and industry perspectives in Q4.
The Q3 report shows that Nuo De New Life A posted a return of -29.53% for the reporting period, significantly underperforming its benchmark of -2.35%. In terms of portfolio adjustments, Zhou maintained the Q2 strategy: the top ten holdings were all in the information technology sector, with their combined weight increasing to 73.13%. However, all top ten holdings saw their stock prices decline during the reporting period, with AI and 5G-related stocks like Yuanjie Technology, Zhongji Innolight, Eoptolink, and Tengjing Technology dropping by over 20%.
Facing rollercoaster-like net value fluctuations, stock forum complaints abound as many investors bought at peak prices. Nord New Life Fund, established in March 2019, remained largely unnoticed for an extended period. At the beginning of this year, its scale was merely 24 million yuan, teetering on liquidation with only 27 million shares. As net values rose, numerous investors joined, expanding shares to 897 million by Q3's end—a 123-fold increase. Mid-year reports show institutional investors held just 1% of Class A shares and 7.7% of Class C shares, meaning over 90% of new capital came from retail investors.
This phenomenon isn't unique to Nord New Life. Most mixed funds that outperformed through heavy AI investments in H1 saw declines in H2. Wind data reveals all top-ten H1 performers (counting A/C shares separately) have dropped since July. For instance, Soochow Mobile Internet A gained over 70% in H1 but fell 17.19% since July; Guorong Rongsheng Leading Stock Selection A rose 55.57% in H1 but dropped 28.15% thereafter. Eastern Regional Development fared better with a modest 2.12% decline.
Why did Eastern Regional Development preserve excess returns? Quarterly reports show fund manager Zhou Siyue shifted to liquor stocks in Q2/Q3 instead of doubling down on AI. After heavily investing in IT stocks during 2022's TMT boom, the fund's top ten holdings were completely replaced by liquor stocks by mid-year. Zhou explained in Q3 reports: "Despite September's tech sector rally fueled by domestic innovation, considering geopolitical tensions and complex domestic fundamentals, we prioritize risk-reward balance—especially for volatile assets—favoring cautious observation."
Overall, computing has been among 2023's most volatile sectors. After heavy Q1 inflows, consecutive Q2/Q3 outflows saw 1,577 funds exit. Industrial Fulian's holders dropped from 947 to 281 funds between quarters. Communication and media sectors—TMT counterparts to computing—also faced broad divestment.
While institutions vote with their feet, draining AI-related stocks, many managers remain optimistic. Yinhuafund's Fang Jian states: "Despite H2 adjustments, AI's momentum persists globally across media, computing, communications, robotics, and autonomous driving." Li Xiaoxing adds: "AI won't mature overnight. Current corrections demand discernment—selecting hardware/software leaders with sustainable performance and superior competitive positioning."