In recent years, the public fund market has seen a continuous expansion of innovative products that use passive instruments like ETFs as their primary underlying holdings—the ETF-FOF category. This category is evolving from a niche exploration into a gradually client-facing portfolio allocation tool. The new paradigm of diversified allocation brought by ETF-FOFs is garnering increasing attention.

Why Diversified Asset Allocation is Crucial

A review of the annual performance of major global asset classes over the past decade reveals that different markets, assets, and sectors or segments have their own moments of outperformance. Returns from major asset classes like equities, bonds, and commodities such as gold exhibit relatively clear rotational and divergent characteristics, with almost no single asset consistently leading the market year after year. By employing major asset class allocation—diversifying holdings across categories, markets, and assets—it is possible to reduce the correlation within an investment portfolio, hedge against structural risks brought by macroeconomic cycles, and aim to capture phased opportunities in different market environments, striving for steady appreciation of the investment portfolio.

Furthermore, as interest rates have gradually declined in recent years, the appeal of returns from traditional time deposits, fixed-income wealth management products, and money market funds has waned. This has increased demand among residents for multi-asset, multi-strategy, portfolio-based allocation. The ETF-FOF category emerged against this backdrop, aligning well with the concepts of wealth management and portfolio allocation for residents and providing a new instrumental approach.

The Advantages of the ETF-FOF Structure

ETF-FOFs combine the dual advantages of ETFs and FOFs. On one hand, they leverage the core strengths of ETFs, such as low fees, transparent holdings, flexible trading, and market maturity. On the other hand, they rely on the professional asset allocation capabilities of FOF managers and fund managers to conduct research on major asset classes, implement diversified sector allocation, and flexibly optimize portfolio adjustments. This approach can potentially avoid the volatility risks of a single sector, spare investors the difficulty of timing the market and selecting funds, and serves as an innovative tool for off-exchange investors to participate in on-exchange market investments.

Compared to directly purchasing a single ETF or FOF, an ETF-FOF can further diversify risk by combining allocations across multiple ETF categories such as equities, bonds, commodities, and cross-border investments. This creates a more balanced investment positioning between return objectives, drawdown control, and the overall holding experience.

For users who favor ETF investments, an ETF-FOF can achieve diversified coverage of quality funds (including across markets, industries, and assets), enabling a diversified portfolio layout with even a small investment. Additionally, the FOF category, drawing on the experience of the manager and professional team, has the potential to achieve dynamic optimization and rebalancing.

For users who favor FOF investments, using ETFs as the primary underlying assets for the FOF product effectively leverages the instrumental attributes of ETFs. The total on-exchange ETF market size is nearly 5 trillion yuan, serving as a comprehensive toolbox for diversified underlying allocation in FOFs: it offers a rich variety with a complete product matrix covering broad-based, sector, strategy, and style categories; holdings are transparent, closely tracking the target index and following beta trends; the market is mature with high valuation efficiency and strong liquidity, providing a first-mover advantage for portfolio investment; and fees are low, with ETF products having relatively low expense ratios, effectively reducing investment costs.

In summary, ETF-FOFs combine the dual advantages of ETFs and FOFs and also offer a new pathway for off-exchange investors to participate in on-exchange market investments.

Who is the ETF-FOF Structure Suitable For?

1. Novice Investors: Those with less experience in stock picking, fund selection, and sector timing, who find it difficult to achieve proper asset diversification and are prone to chasing rallies and selling in panic. ETF-FOFs, relying on the fund manager's selection of multiple underlying ETFs, offer a one-stop solution to build a balanced portfolio, allowing for a worry-free layout across diverse markets and assets.

2. Experienced Investors: Those whose frequent portfolio adjustments generate transaction fees or whose heavy concentration in a single sector leads to high systemic portfolio risk. ETF-FOFs offer the potential for one-click investment across on/off-exchange markets, industries, and asset classes, optimizing an existing investment portfolio and smoothing overall volatility.

Strong Support from Tianhong Fund

Tianhong Fund's FOF team operates under an integrated investment research and specialized division of labor approach, comprehensively covering asset allocation, fund research, and investment management, forming a closed-loop system with mutual support. Simultaneously, the FOF investment research team collaborates with the company's equity and fixed-income investment research teams, learning from and complementing each other.

Ms. Meng Yao holds a Ph.D. from Xi'an Jiaotong University and previously served as an Investment Manager in the Index and Futures Investment Department at Dacheng Fund and as an Investment Manager in the Portfolio Investment Department at Founder Securities. Her investment philosophy combines qualitative causal relationship research with quantitative correlation studies. Based on high-quality beta and value-for-money vectors, she comprehensively employs various investment strategies to strive for steady returns.

Adopting the FOF structure with a primary underlying investment in passive instruments like ETFs combines the dual advantages of ETFs and FOFs. The setting of a minimum 3-month holding period serves investors by helping prevent chasing rallies and panic selling, effectively responding to short-term market fluctuations, and aiming to improve the fund holding experience. For the manager, it focuses on medium- to long-term investment value, making the investment strategy and fund size more stable.

In the current market environment, for investors seeking professional asset allocation services, the TianHong XinZe 3-Month Holding Period (ETF-FOF) (Class A Code: 027172) may be an option worth serious consideration.