Zhitong Finance APP learned that on July 18th, Liu Gesong's fund products under Guangfa Fund announced the second quarter report of this year. Looking at the quarterly report of its Guangfa Small Cap Growth Hybrid Securities Investment Fund (LOF), as of the end of the reporting period, the net value growth rate of the A-class fund share of the fund was -7.34%, and the net value growth rate of the C-class fund share was -7.44%, and the benchmark performance for the same period was -7.98%. Liu Gesong said that the military industry and semiconductor equipment industries have been appropriately increased in allocation at low positions, while the global comparative advantageous assets such as the photovoltaic and its industrial chain, lithium batteries, and electric vehicles have maintained their original configuration levels.

The report mentioned that for example, in the photovoltaic component industry, which is one of the heavyweight positions of the fund, under the condition that demands are still maintaining high growth, the bidding prices of photovoltaic components continued to decline starting from the fourth quarter of 2023 to the first half of 2024, and the downward trend far exceeded the market expectations, resulting in many companies in the entire industry suffering from significant losses in the first quarter. Analyzing the reasons from the industrial perspective, many companies that do not have advantages in production technology, cost, and overseas channels have entered the photovoltaic industry across the border and intensified internal competition. Internationally, since these comparative advantageous industries are prominent, some countries also frequently use tariff weapons. Although it may be difficult to affect the ultimate industry pattern in the long term, the valuation of leading companies in stages has been under pressure, affecting the performance of the sector.

The intensification of internal competition has led to temporary supply-demand imbalance, and the rising trend of external trade protectionism. The difficulties faced by the photovoltaic industry are representative for the advantage manufacturing industry whose main business is exports. They are heavily allocated in this direction, and the net asset value performance of the fund has been poor in the past two years. On the one hand, the expectations of prosperity of the advantage manufacturing industry companies have decreased due to supply-demand imbalances, and asset prices have experienced violently early reactions; on the other hand, the asset prices of the advantage manufacturing industry have experienced excessive declines due to the suppression of growth style. Standing at the current time point and thinking repeatedly, is this imbalance temporary or long term? Will China's comparative advantage in manufacturing be replaced?

In addition, from a positive aspects, at the industry level, optimization has already begun after the dramatic drop in product prices. Enterprises that do not have competitive advantages are accelerating their exit, and leading companies are also making efforts in intellectual property protection to defend their legitimate rights and interests and consolidate industry competitive advantages. Liu Gesong believes that the bidding below cost price is definitely not sustainable. We expect that after the optimization of the industry supply and demand pattern, global comparative advantageous manufacturing industries will usher in new growth space. From the perspective of R&D reserves and advantages of upstream and downstream supply chain matching, China's long-term comparative advantages in manufacturing are still prominent. After the short-term imbalance problem is resolved, many industries will develop more steadily, healthily, and orderly. Currently, the valuation of the global comparative advantageous manufacturing industry is at a historically low percentile. As the industry re-enters a benign development stage in the future, we have confidence in the market performance of the industry.

In terms of portfolio management, we will continue to adhere to the industry-based approach and find industries that meet our investment logic for long-term investment and share the dividends of corporate growth. Although our investment style has performed considerably worse than investors' expectations in the past two years, we still have confidence in our holdings. China has a large number of world-class enterprises and outstanding entrepreneurs in the manufacturing field. These entrepreneurs' vision, innovation consciousness, and team capabilities will continue to lead industry development. As the industry enters a new round of development stages, the pressure on valuations will change.

Looking at the top ten heavy positions, the first and second heaviest positions are still Chongqing Sokon Industry Group Stock (601127.SH) and SG Micro Corp (300661.SZ), with no changes in the number of shares held for Sokon compared to the first quarter, and slightly reduced shares held for SG Micro Corp. However, their net value ratios have risen to more than 10%. In addition, Jinlong Technologies (300763.SZ) and JA Solar Technology (002459.SZ) exited the top ten heavy positions in the first quarter, and the corresponding Beijing Yuanliu Hongyuan Electronic Technology (603267.SH) and Hu Qin Technology (688281.SH) appeared in the top ten heavy positions.