The market for FOFs, or Funds of Funds, is experiencing significant expansion. According to Wind data, as of June 22, the total number of publicly offered FOF products in the market has reached 615 (counting only the main share classes), with an aggregate size of 369.24 billion yuan. This represents a 195.24% increase from five years ago (June 22, 2021), when the size stood at 125.05 billion yuan. This year alone has seen the launch of 88 new FOF products, with a combined issuance scale of 113.77 billion yuan. This figure not only surpasses the full-year issuance level of 2025 but also sets a new record, breaking the previous high established in 2021.

Key Drivers of Growth

A notable point of distinction is the character of this year's growth. Unlike the 2021 expansion, which was primarily driven by pension-target FOFs, the current surge is marked by more pronounced asset allocation features. Industry experts believe that FOFs are evolving from being simple fund products into comprehensive asset allocation tools. This shift is propelled by factors such as the upgrading of wealth management demands, the transformation of banking distribution channels, and the increasing sophistication of individual investors' asset allocation concepts.

Wealth Management Strategy for Fund Houses

Analyzing the product structure reveals that this year's FOF market growth is not reliant on a single product type. "Current capital is showing greater interest in products that combine risk diversification with stable returns," noted a chief economist. "Compared to directly investing in a single fund, FOFs can effectively mitigate the impact of volatility from any single asset through professional fund selection and broad asset allocation. This aligns better with the current investor demand for a balanced risk-return profile."

The analysis suggests that multi-asset FOFs and "fixed-income-plus" FOFs have become key areas of focus. These products aim for relatively stable returns while controlling volatility through dynamic allocation across different asset classes like equities and bonds, fitting well with the current preference for steady investment strategies. Pension-target FOFs and ETF-FOFs (funds that invest primarily in Exchange-Traded Funds) also maintain high levels of attention. The former emphasizes long-term investment philosophy, while the latter enhances allocation efficiency and transparency through the use of ETF tools.

A representative from a fund management company added that the development of FOF products in recent years benefits from an improved market environment and reflects a growing recognition of asset allocation principles among investors. The core of future FOF competition, they noted, will lie more in asset allocation and portfolio management capabilities than in the ability to select individual funds.

In fact, from an industry development perspective, FOFs have become a crucial instrument for public fund managers in building out their wealth management businesses.

Changing Drivers and Enhanced Value

Compared to the previous round of FOF expansion in 2021, the sources of capital and the underlying drivers for the current market growth show significant changes. A senior analyst from Morningstar (China) Fund Research Center explained that the 2021 expansion was largely propelled by the development of the third pillar of the pension system, with pension-target FOFs serving as a key vehicle. In contrast, the current growth stems more from shifts in household asset allocation needs and the transformation of banks' wealth management operations.

Regarding funding sources, part of the incremental capital this round comes from the reallocation needs of household funds reaching maturity, often channeled into products like bond-biased hybrid FOFs through banks. In terms of investor structure, both growth phases have been predominantly led by individual investors.

From a distribution perspective, bank channels remain a significant source of new inflows for these products. A public fund product manager stated that the sales increase for FOFs this year primarily originates from the asset allocation demands of bank channels. As the wealth management market develops, bank channels are transitioning from traditional product distribution towards providing asset allocation services. Low-volatility, bond-biased FOFs and bond-biased hybrid FOFs have become important allocation tools in this context.

The manager believes this round of FOF expansion is not merely a cyclical market phenomenon but rather a reflection of the ongoing release of asset allocation demand within the broader transformation of the wealth management industry. As household wealth management concepts become more mature and the high-quality development of the public fund industry continues to advance, the allocation value of FOFs—as a vital tool connecting different asset classes and meeting diversified investment needs—is expected to be further enhanced.