Securities Times: Bitcoin funds kill 99% of mainland funds and fund managers are investing in them

1. Public offerings of Bitcoin ETFs have made huge profits

Wind data shows that the fund product with the highest return rate this year is 55.32%, the second-ranked fund product has a return rate of 47.5%, and the fund with the highest loss has lost 40% of its net value this year. This data does not include alternative products operated by overseas subsidiaries of public funds. Take Southern Fund as an example. A Bitcoin ETF fund operated by the company's Hong Kong subsidiary has a return rate of 54.63% this year, which is better than 99% of the mainland public products, whose main investment targets are stock assets.

Although mainland stock and fund investors have always maintained the lowest level of the "contempt chain" for Bitcoin investment, the leading public funds regard Bitcoin assets as a serious matter. Securities China reporters noted that in December last year, the Hong Kong subsidiary of Southern Asset Management officially launched the first batch of virtual asset ETFs in Asia: Southern East Asset Management Bitcoin Futures ETF and Southern East Asset Management Ethereum Futures ETF. The relevant ETFs were officially listed and traded on the Hong Kong Stock Exchange, and Southern Asset Management became the first mainland public fund to deploy Bitcoin fund business.

In terms of specific strategies, taking Bitcoin futures ETF as an example, according to the introduction of Southern Fund's Hong Kong subsidiary, this is a futures-based exchange-traded fund, which is affected by the risks of related derivatives and is different from traditional exchange-traded funds. The investment objective of the sub-fund is to achieve long-term capital growth by investing mainly in Bitcoin futures of the Chicago Mercantile Exchange (CME). The price changes of Bitcoin futures of CME may deviate significantly from the spot price of Bitcoin. The sub-fund does not seek to provide returns on the spot price of Bitcoin. In addition, the sub-fund's investment in Bitcoin futures of CME faces major risks, such as potential large rollover costs, operational risks (such as margin risks and risks associated with compulsory measures implemented by related parties). The sub-fund adopts an actively managed investment strategy. The sub-fund does not seek to track any index or benchmark, and the fund manager does not perform replication or representative sampling.

2. Many public offering giants are involved in digital currency

In contrast to the stock market, Bitcoin prices have performed very well this year.

China Securities Journal reporters noted that as of October 2, Bitcoin's year-to-date increase has reached 70%, with the price of each Bitcoin exceeding RMB 200,000 and a total market value of RMB 3.89 trillion. In addition, Ethereum's market value has also exceeded RMB 1.48 trillion, and the latter's price increase has also exceeded 40% this year.

The strong performance of Bitcoin and Ethereum may benefit star fund managers who have entered alternative investments, including Xiao Feng, a former tycoon of public funds, and Wang Yawei, a former top public fund manager. In particular, Wang Yawei's portfolio suddenly added digital currency assets that were severely abandoned by the market in the fourth quarter of last year. Bill Miller, a famous American fund manager who has outperformed the S&P 500 index for 15 consecutive years, publicly stated last year that 50% of his personal investment portfolio is Bitcoin and the other 50% is Amazon stock. Miller said that he has been buying and holding Bitcoin since the price was $200.

Xiao Feng, a former head of a public fund, has always had a soft spot for virtual assets such as Bitcoin. At an event at the end of September, Xiao Feng said that the virtual asset policy of the Hong Kong Special Administrative Region is not to speculate or trade crypto tokens, but to serve the real economy through tokenization, support technological innovation, and upgrade the financial center. He said that the Hong Kong International Virtual Asset Center needs to have a four-layer structure: an active secondary market (trading), an effective primary market (issuance), centralized industry services, and a rich industrial ecology (Web3.0). On this basis, Hong Kong can be upgraded to the Hong Kong International Financial Center 2.0.

3. Fund managers take advantage of the cryptocurrency market through stocks

It is worth noting that Southern Fund is not only developing Bitcoin fund business, it is also actively buying stocks with Bitcoin concepts in the stock market.

According to the fund's semi-annual report, the Southern Hong Kong Growth Fund managed by Wang Shicong bought a large amount of Meitu during the second quarter of this year and listed Meitu among the top ten heavily held stocks. Meitu is almost one of the few Hong Kong stocks that will rise in 2023. In the past four months alone, Meitu's stock price has risen by as much as 60%.

Why did the Hong Kong stock theme fund under Southern Asset Management buy Meitu, which was previously disliked by the market? Industry insiders believe that considering that Southern Asset Management has actively deployed Bitcoin ETFs and the Bitcoin price has risen well this year, the implicit value generated by Meitu's large holdings of Bitcoin assets may be easier for fund managers to understand.

After Southern Fund invested heavily in Meitu, the latter released its interim financial report showing how Bitcoin assets helped the performance of this Hong Kong-listed company. According to the financial report data released by Meitu, Meitu achieved total revenue of 1.261 billion yuan in the first half of the year, a year-on-year increase of 29.8%. The net profit attributable to the parent company was 228 million yuan, a year-on-year turnaround from loss to profit in 2022. The adjusted net profit attributable to the parent company was 151.5 million yuan, a year-on-year increase of 320.4%.

This amazing performance growth is largely due to Bitcoin. The report shows that the cryptocurrency impairment write-back reached 186 million yuan. According to Meitu's semi-annual report, as of June 30, 2023, Meitu Group valued its cryptocurrency holdings based on the market price at the time. The fair value of the purchased Ethereum units was approximately US$57.41 million, and the fair value of the Bitcoin units was approximately US$28.28 million. In accordance with the relevant accounting provisions of the International Financial Reporting Standards, Meitu Group lists the purchased cryptocurrencies as intangible assets and measures them using the cost model. With the fluctuations in the cryptocurrency market, as of June 30, 2023, the market price of the purchased cryptocurrencies has increased compared to December 31, 2022. Therefore, Meitu Group recognized a write-back of approximately RMB 185.6 million in cryptocurrency impairment losses. Accordingly, Meitu Group wrote back approximately RMB 90.8 million and RMB 94.8 million in impairment losses on purchased Bitcoin and Ethereum, respectively, in the six months ending June 30, 2023.