In stark contrast to smaller public funds frequently emerging as champions in the A-share theme fund segment, the leading giant public funds have consistently clinched the top spot in QDII (Qualified Domestic Institutional Investor) products for six consecutive years.

The immense financial strength of these leading public funds, coupled with an unyielding approach towards returns on investment, has enabled them to secure a formidable competitive edge in QDII operationsOver the past six years, the overall champion of QDII has been exclusively locked in by trillion-yuan fund companiesHowever, for smaller public funds, which emphasize short-term performance enhancement, the QDII business proves to be less attractive due to its high initial investments, low returns, and lengthy payoff periods

Consequently, these mid-sized firms tend to adopt a more cautious and restrained strategy regarding overseas market engagements.

Nevertheless, with many top public funds amplifying their QDII product scales, profitability from international operations has now become a realityJudging from the changes in management fees, many of these leading companies have transitioned from a phase of long-term investment to one of reaping the rewards.

Giant Public Funds Dominate QDII Championships Year After Year

Although small and medium-sized fund companies have long since entered the QDII market, they still face challenges when competing on product performance.

As per Wind data, with only seven trading days left in the year, top public funds have nearly secured the total championship for QDII products for 2024. Currently, the Southern Fund’s QDII, which focuses on emerging economies in China, boasts an impressive year-to-date return of 51.92%. The second-best QDII performance is attributed to Huabao Fund’s NASDAQ Select Fund, with returns at 38.71%. With a commanding performance advantage of 13 percentage points heading into the final week of trading, it is highly probable that Southern Fund’s emerging economies QDII will clinch this year's overall QDII fund championship.

Interestingly, among the top ten public QDII products, almost all hail from giant public funds with asset management scales exceeding a trillion yuan, such as Southern, E Fund, Huaxia, and Fortis

Notable performances include Fortis Global Consumption QDII with a year-to-date return of 37.8%, E Fund Global Growth QDII at 37.17%, and Huaxia Global Tech Leader QDII at 36.57%.

As these trillion-yuan funds secure championships and dominate the top ten QDII fund performances, the bottom ten underperforming QDII products, which have incurred significant losses, chiefly stem from smaller fund companiesThis disparity illustrates the division of performance within public QDII products, which closely correlates with the financial strength of the companies behind them.

The performance differences in QDII versus A-share theme funds reveal a significant divergenceOver recent years, champions in the A-share funds have predominantly come from smaller public funds, with top-tier fund companies frequently absent from championship rankingsAccording to the latest data regarding actively managed A-share equity funds, most top performers stem from smaller funds, with the Morgan Stanley Digital Economy Fund achieving a remarkable total return of 71.26%. In such a challenging landscape, large public funds face considerable difficulties in achieving comparably high annual yields within the A-share market.

Substantial Investment in Overseas Markets, Late Rewards

Top-tier public funds have established a dominant performance advantage in overseas markets, significantly owing to resource allocations and first-mover benefits.

Having been among the first to receive clearance for overseas QDII operations, leading public funds have indeed faced initial losses with early products, yet they have garnered invaluable operational experience

Smaller public funds have gradually begun their QDII ventures, but compared to their larger peers, these smaller companies not only lack experience but also face challenges in terms of talent deployment and research resource allocation.

For example, in the past six years, Southern Fund’s QDII products secured two annual championshipsAside from the Southern China Emerging Economy QDII this year managed by Wang Shicong and Huang Liang, Southern’s Hong Kong Growth Fund claimed the 2020 championship with a stunning 101.67% return, a feat attributed to Southern Fund's aggressive commitment in overseas marketsReports suggest that the firm has established a comprehensive framework for overseas market operations, including cross-market and multi-asset class products, thereby amassing substantial experience in product development, distribution, and investment management.

In contrast, smaller funds exhibit a noticeably restrained stance in overseas business investments

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"Our international business department is understaffed, and this segment’s contributions to our revenue are insignificant, so no substantial investments have been made," asserted an international business head from a public fund company in ShenzhenFor smaller public funds, the overseas business is viewed merely as a necessity rather than a competitive arena; generally, second and third-tier funds hold back investments in this segment.

Given that the QDII sector contributes minimally to overall public fund profits, the scale of QDII products frequently remains limitedTherefore, significantly reallocating resources and investing in talent for QDII appears unappealing from a short-term perspective, particularly for mid-sized public funds striving to enhance their survival capabilities in a fiercely competitive marketAs such, QDII ventures tend to receive lower prioritization compared to A-share thematic funds.

The QDII Business Approaches Profitability, Management Fees Indicate Earnings Potential

It’s notable that leading public funds’ layouts are gradually shifting from investment-heavy phases toward profitability in overseas operations, moving past the awkward scenario where management fees couldn't cover operational costs in QDII products.

Although the public QDII business has historically seen substantial investment with low or negative returns, over time and with ongoing investments, large public fund companies are starting to transition to a phase of profit realization, which suggests that traditionally smaller QDII funds may now generate significant profit as they scale up.

Reports indicate that Guofang Global Select QDII, which achieved a dual champion title for the market and public QDII in 2023, is now nearing a total scale of 9 billion yuan

Considering Guofang’s consistent performance and last year's championship, where they broke the performance curse, they boast over a 27% return this year, indicating their continual lead in the QDII rankings which could further increase by year's end, leading to improved profitability.

The periodic reports released by the fund firm indicate that in the first half of this year, the management fees for Guofang Global Select QDII surged from 22.58 million yuan from the previous year to 60 million yuan in the current periodThis suggests that the annual management fees for this QDII fund may exceed 100 million yuan this year.

The performance evolution of the highest-yielding QDII fund manager, Wang Shicong, illustrates fluctuating fund scales and management fee dynamics that emphasize the forthcoming profitability of overseas marketsPreviously, when managing the Southern Hong Kong Growth QDII Fund, its scale was below 100 million yuan in 2020, yielding a management fee of around 1 million yuan that provided negligible contributions post essential operational costs