Fund of Funds (FOF) has become the standout financial category this year. According to Wind data, as of March 16, 2026, 45 new FOF funds were launched in the market, raising a total of 66.25 billion yuan in issuance.
To put this into perspective, during the same period in 2025, only 14 new FOF funds were established, with a total issuance of 13.84 billion yuan. This represents a year-on-year growth of 221.4% in the number of funds and 378.68% in issuance scale.
FOF funds were previously considered a niche segment. What has driven this explosive growth in 2026?
First, supportive market conditions have played a key role. Since 2025, equity markets in both A-shares and Hong Kong have experienced volatile upward trends, with frequent structural opportunities. However, the risk of volatility in single-asset investments remains significant. For investors, capturing these structural opportunities is challenging, and risk tolerance is limited. This market environment, characterized by potential gains that are difficult to realize and a fear of losses, has created ideal conditions for FOF funds, which emphasize diversified allocation and risk mitigation.
Simultaneously, the one-year time deposit rate has fallen below 1%, and returns on traditional low-risk products like bank wealth management and deposits have continued to decline. A large amount of risk-averse capital seeking stable returns is facing a shortage of high-quality, low-risk investment options. This has increased demand for professional allocation tools like FOF, which offer both stability and moderate return potential.
Moreover, repeated market fluctuations have reshaped investor attitudes. The previous speculative mindset of chasing ultra-high returns in single funds or asset classes has faded, replaced by a growing appreciation for diversified, steady growth strategies.
Additionally, with over 50 trillion yuan in household time deposits maturing, there is an urgent need for capital reallocation in a low-interest-rate environment. FOF funds, which invest in a portfolio of other funds, offer a balanced approach—allowing for both offensive and defensive strategies. Managed by professional teams that select high-quality targets and diversify across categories, FOF funds can effectively reduce volatility while balancing stability and returns, addressing common investor challenges such as fund selection and allocation.
In essence, the core advantages of FOF—secondary risk diversification and professional fund selection—align perfectly with current market needs, making them a natural destination for capital reallocation. This trend is supported by favorable timing, conditions, and demand.
Second, the underlying assets available for FOF investment have become more comprehensive and diverse. Since 2025, the domestic ETF market has expanded, covering equities, bonds, commodities, cross-border assets, and more, providing FOF with efficient and transparent allocation tools. Meanwhile, new regulations for public funds have imposed stricter requirements on performance benchmarks, information disclosure, and investment operations, enhancing the reliability of actively managed funds and improving the screening and portfolio construction processes for FOF.
Furthermore, increased volatility in commodities such as gold, crude oil, and non-ferrous metals, as well as in overseas markets, presents both opportunities and risks that are difficult for individual investors to navigate. Leveraging professional research capabilities, FOF funds can allocate flexibly across categories and markets, capturing diverse opportunities while mitigating tail risks, thus offering a one-stop solution for investors and gaining broader market recognition.
Against the backdrop of asset scarcity and evolving allocation strategies, the continuous enrichment of underlying tools, coupled with professional cross-market and cross-category allocation capabilities, has positioned FOF as an optimal solution for today’s market. As demand for asset allocation continues to grow, FOF funds are expected to see even greater development.
Given the increasingly complex market environment in 2026, how can investors effectively utilize FOF?
The synchronized adjustment across asset classes in March 2026 has heightened challenges for both investors and FOF managers. This market shift is primarily driven by short-term anomalies resulting from geopolitical conflicts and liquidity tightening, rather than reflecting normal market conditions.
Historically, equities, bonds, and commodities have exhibited clear rotational returns and risk hedging characteristics. The recent broad-based decline is likely a temporary panic-driven reaction, inconsistent with the long-term pricing logic of major asset classes. As sentiment stabilizes and fundamentals recover, differentiation and hedging effects among assets are expected to reemerge.
However, with global conditions remaining complex and volatile, the pace of asset rotation is likely to accelerate, placing greater demands on FOF managers’ abilities in macro-asset judgment, strategy adjustment, and risk control.
Therefore, when selecting FOF investments, investors should look beyond short-term performance and focus on managers’ macroeconomic frameworks, multi-asset allocation experience, and drawdown control capabilities. Choosing professional and steady managers is crucial for navigating fast-rotating markets.
What should investors look for in an FOF fund manager?
First, the manager should have a clear allocation system, grounded in a robust macroeconomic framework and risk control logic, rather than relying on discretionary adjustments. Second, practical experience across multiple markets, including bull and bear cycles, is essential for adapting to rapid market rotations. Finally, historical performance should be evaluated.
Take Zeng Hui of Guotai Asset Management as an example.
Regarding allocation systems, Zeng employs a subjective and quantitative investment approach, emphasizing drawdown control, with extensive experience in equities, bonds, commodities, and overseas assets. His strategy involves dynamic adjustments based on macro risk control and mid-cycle rotations, rather than static allocations.
In terms of market experience and performance, the FOF products managed by Zeng have delivered strong results. For instance, the Guotai Optimal Navigation FOF, an equity-strategy fund, has achieved a one-year return of over 112%, ranking first across multiple time periods. Another product, the Guotai Ruiyue FOF, which focuses on bonds and commodities, posted a one-year return of 6.22%, also ranking first in its category.
Zeng believes the public fund industry has entered a new phase, shifting from static allocation to tactical rotation. The role of FOF managers has evolved from allocators to active competitors, leveraging ETFs. This transition, he notes, will be highly competitive.
He views the market as oscillating between overbought and oversold extremes, akin to a taiji diagram. The key to investing, in his view, is identifying turning points rather than fixating on fair value. This dynamic approach is essential for adapting to ever-changing markets.
Compared to traditional static multi-asset allocation, Zeng’s quantitative rotation model focuses on overbought-oversold extremes, incorporating macro timing, sector rotation, asset enhancement, and rigid risk controls. This framework integrates various assets over medium to long-term cycles while continuously refining algorithmic models.
Despite the popularity of FOF, some concerns about "FOF allocation failures" have emerged in 2026, given geopolitical tensions and broad-based adjustments in global markets and commodities. However, Zeng’s strategy is designed to thrive in such conditions, where asset relationships are constantly reassessed.
Zeng recently addressed investor questions regarding current market dynamics:
On asset investment value: Using an overbought-oversold framework, Zeng notes that bond yields rose rapidly in late 2025 due to property bond volatility, new fund regulations, and stronger-than-expected equity performance. For example, 30-year government bond yields increased by over 50 basis points, indicating overbought conditions. Short-term yields may gradually decline, leading to a rebound in long-term bond prices, but medium-to-long-term yields are expected to rise amid economic recovery expectations and potential oil price shocks. In equities, 2025 saw significant valuation expansion, with some sectors becoming overbought. 2026 may focus more on earnings growth, with continued structural opportunities but differing styles.
On gold investment: Zeng assesses gold from medium and short-term perspectives. Medium-term, geopolitical conflicts and high U.S. stock market risks support gold’s appeal. Short-term, gold and silver had strong performances early in the year, but may be overextended and due for a correction. Gold’s investment appeal has normalized after being highly attractive six months ago, but may improve again after a pause.
On oil price trends: Historically, commodities can be divided into precious metals (industrial metals) and crude oil/chemicals/agricultural products, driven by liquidity and fundamentals, respectively. The current conflict in Iran may shift the commodity market from precious metal dominance to a dual leadership with oil. Thus, oil price increases may not be short-lived.
On FOF asset allocation: Zeng emphasizes that with the rise of quant and ETFs over the past decade, equity volatility has increased significantly. Multi-asset allocation using commodities like gold and silver, as well as overseas assets, is becoming essential. However, traditional hedging based on negative correlations may fail in extreme conditions. Therefore, macro risk control and a core-satellite fund model are added to enhance drawdown control—reducing overall positions in extreme scenarios and allocating to defensive core funds. Going forward, Zeng favors structural opportunities in A-shares, diversified and patient approaches overseas, and tactical rotations in commodities, largely implemented via ETFs.
Risk Disclosure: Performance data for products managed by Zeng Hui as of December 31, 2025, are provided for reference. Past performance is not indicative of future results. Investors should review fund prospectuses and consider risk tolerance before investing.