The characteristics of short-term investment behavior are increasingly indicative of the intensifying competition among institutional investorsThe debate around whether the renewable energy sector is still bottoming out or has begun to recover was reignited due to the market performance on February 14 and 15, raising questions among many investors.

According to data from Wind Information, the China Securities Renewable Energy Index saw a gain of 4.50% from February 14 to 15, which improved the decline since the beginning of the year from -18.12% to -14.44%. Notably, CATL (Contemporary Amperex Technology Co., Limited), which holds the largest position in many funds, increased by 7.56% during the same period, with its year-to-date decline reducing from -16.67% to -10.37%, effectively recovering nearly half of its losses.

However, it remains to be seen how the next chapter of this narrative will unfold

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Market sentiment still shows reservations, as the average daily transaction volume for the China Securities Renewable Energy Index during this period was 72.4 billion yuan, representing only 65.94% of the average daily trading in the fourth quarter of 2021 (around 109.8 billion yuan) and about 74.64% of the overall average daily trading amount of 97 billion yuan in 2021.

For investors who bulked up their positions in the renewable energy sector during Q4 of 2021, the light at the end of the tunnel may still be some time awayMeanwhile, public funds that increased their allocations in this sector may have to endure public criticism for an extended period; institutions like Tai-Da Hongli are not exempt from this scrutiny.

Before Q2 of 2021, Tai-Da Hongli displayed a distinct preference for the liquor and pharmaceutical sectors

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Data from Tian Tian Fund reveals that major holdings consistently included names like Kweichow Moutai, Changchun High-tech, Wuliangye, and Hengrui Medicine, which dominated their top positionsAs of the end of the first quarter of 2021, three of their top ten stocks belonged to the liquor sector, and five were from pharmaceuticals.

Moreover, the turnover among their top holdings was minimal; for instance, nine of the top ten stocks at the end of Q1 2021 remained the same as the previous quarter, albeit in a different orderThe end-of-year holdings pattern was similar, demonstrating a relative stability in their investment strategy and reflecting a certain conviction in the market.

However, beginning in Q2 of 2021, this entrenched pattern was disruptedBy the end of Q2 2021, the number of liquor and pharmaceutical stocks in Tai-Da Hongli’s top holdings decreased to five, and by the end of Q3 and Q4, it further dwindled to just one

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In contrast, the share of renewable energy stocks, especially those comprising the China Securities Renewable Energy Index, surged significantly during the same period.

While none of Tai-Da Hongli's top holdings belonged to the renewable sector at the end of Q1 2021, the count increased to two by Q2, six by Q3, and eight by Q4. The flux within the renewable energy stocks further highlights the shift in investment strategy that began to characterize their approach.

This transition towards a greater focus on renewable energy investments indicates a belief in the sector's emerging stability and growth potentialIn the Q3 2021 report, fund manager Wang Peng articulated that the prevailing market theme was "carbon neutrality," where the renewable sector would continue to benefit from sustained demand while cyclical goods would potentially see price hikes due to reductions.

The frequency with which Tai-Da Hongli adjusted its renewable energy holdings exemplified the short-term focus of its investment behavior, which indirectly reflects a rapid shift in market logic.

For example, the decision to reduce exposure to CATL in Q3 2021 was cited as a response to changes in profitability amid rising costs for upstream resources and midstream materials

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Conversely, the subsequent increase in CATL holdings in Q4 reflected a strategic return to "investing in leading companies in promising sectors, aiming for the twin boosts of valuation and performance," a method seeking to capitalize on unexpected performance driving up returns over the long term.

The evolution of Tai-Da Hongli’s investment strategy reveals increased competition among institutional investors, especially in a crowded field like renewablesA case in point is CATL, where the number of public mutual funds holding its shares surged from 808 at the end of Q1 2021 to 1,479 by Q3 and 1,663 by Q4, thereby covering 29.39% of all equity and mixed funds.

When examining valuation metrics, CATL reached a peak PE ratio of 160.72 in Q4 2021 based on closing prices, with an average trading price of 620.22 yuan translating to a TTM PE of 144.88. The PE of the China Securities Renewable Energy Index stood at 57.62 by the end of 2021, much higher than the median of 46.36 over the prior two years.

In the short term, Tai-Da Hongli's investments in the renewable sector, made at high prices during Q4 2021, resulted in substantial asset value declines for its associated funds.

Data from Wind Information shows that by February 15, 2022, all 39 equity funds (including stock and mixed funds) managed by Tai-Da Hongli recorded negative returns since the beginning of 2022, with 20 of them experiencing declines exceeding -10%, including 13 that emphasized renewable energy stocks while the remainder focused on pharmaceuticals and liquor.

Fund managers overseeing these renewable-heavy funds include Wang Peng, who simultaneously serves as the general manager of the investment department, and Zhang Xun, the head of the research department

Wang manages five funds with a total asset value of 13.5 billion yuan, representing 32.07% of Tai-Da Hongli's non-monetary scale of 42.1 billion yuan as of the end of 2021.

As of mid-February 2022, the net value growth rates for these funds were -13.54%, -13.04%, -14.08%, -13.13%, and -13.46%, all underperforming their benchmarks.

Notably, apart from the newer funds established in late 2021, all three of the longer-standing funds had CATL as their largest position.

Regular reporting indicated significant overlap among the major holdings of these funds, exceeding 80% similarity, featuring stocks such as CATL, Zhongtian Technology, BYD, Yiwei Lithium Energy, and othersBy mid-February 2022, the performance of these stocks varied significantly, with some experiencing losses of up to -25.83%.

Given the similar performance outcomes of these funds during the same period, the two newer funds likely mirrored their older counterparts, achieving similar heavy allocations shortly after their inception.

Zhang Xun manages seven funds whose collective net assets account for 7.84% of Tai-Da Hongli's non-monetary scale

The performance of these funds has also been disappointing, with returns significantly lagging their benchmarks.

Interestingly, the shift in Tai-Da Hongli's investment style might correlate with personnel changes within the firm, which has been operational for nearly two decades under various names before settling on "Tai-Da Hongli" in 2010. Originally having a modest registered capital, Tai-Da Hongli has grown its public asset management scale consistently.

The company underwent significant management changes, such as the transition in 2020 when Gung Jinmei stepped down as chairman, replaced by Liu Yi from the controlling groupThis leadership change coincided with an expansion of the investment decision-making committee, influencing the strategic direction of the firm's investment portfolio.

In the period leading to these developments, the firm’s investment decisions were dominated by a smaller group, evolving gradually to a larger committee that comprises designated managers focusing on different asset classes.