Last Friday, the central bank released the Social Financing data for January, which significantly exceeded market expectationsThis positive indicator reflects a rebound in credit demand, igniting further discussions within the bond market.

On one hand, there are reasons to remain optimistic about the bond market amid a steady economic recovery combined with persistent investment momentumOn the contrary, from an interest rate perspective, the bond market currently appears to lack a favorable cost-performance ratio for investors, suggesting a more cautious approach.

Post-Chinese New Year, the A-share market, guided by DeepSeek, experienced an unexpected surge known as the spring rallyMeanwhile, the convertible bond market began its recovery earlier in the last quarter, showing substantial growth since its low point on October 10, marking an increase of over 10% in the China Securities Convertible Bond Index.

The fluctuating dynamics between equity and fixed income investments are now sparking nervousness among investors.

As investors grapple with this shifting landscape, many are contemplating how to strike a delicate balance in their portfolios.

For the majority of ordinary investors, chasing after tech assets, which have witnessed substantial gains, may not be the best route, as the inherent volatility can be daunting.

Instead, focusing on making slight but meaningful advancements within the realm of fixed income might be a more prudent strategyUtilizing convertible bonds to enhance the yield of a “fixed income plus” strategy offers a compelling cost-performance alternative.

A case in point is the fund managed by Song Qianqian, the Guangfa Jutai Mixed Fund, which was one of the funds increasing its allocation in convertible bonds last yearAs of the end of the fourth quarter, the investment in convertible bonds constituted 8.65% of the fund’s net assets, a significant increase from the previous 1.33%.

According to the fund’s quarterly report, as of the end of 2024, the Guangfa Jutai Mixed Fund has seen net value growth rates of 4.64%, 11.82%, and 18.07% over the past year, three years, and five years respectively

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Since its establishment on June 18, 2015, it has realized a net value increase of 73.45%, notably outperforming the benchmark, which recorded a mere 36.57% during the same period.

The fund is categorized as a bond-heavy mixed fund, with equity instruments like stocks and warrants accounting for no more than 30% of the fund’s total assets, while fixed income instruments must comprise at least 70%. Since Song Qianqian took over management in September 2021, the strategy has primarily focused on the “pure bond base with convertible bond gains,” allowing the fund to better pursue absolute returns.

Song Qianqian currently serves as the general manager of the bond investment department at Guangfa Fund and has over 13 years of experience in the securities industry, including seven years in investment managementSince assuming her role managing absolute return-focused accounts in 2017, she has overseen a variety of product types, honing her investment strategy to prioritize risk management while seeking steady growth.

Data from the fund’s periodic reporting indicates that Guangfa Jutai Mixed Fund has achieved positive annual returns for nine consecutive natural years since its inceptionAs reported by Galaxy Securities, as of the end of 2024, the fund's maximum drawdown over the past year and three years was 0.93% and 2.35%, respectively, in stark contrast to the peer group benchmarks of 10.37% and 21.87%, showcasing a significant advantage in volatility control.

While convertible bonds are the primary asset used to boost yields, the core strategy of “fixed income plus” depends heavily on asset allocation across categories and bondsReviewing periodic reports reveals that Song Qianqian adjusts the convertible bond allocation flexibly, opting to reduce holdings or maintain a cash position when deemed necessary, primarily capturing excess through adjustments in bond duration and leverage.

For instance, during her management of Guangfa Jutai, Song initially allocated convertible bonds but began to decrease this allocation at the onset of 2022. By the third quarter of 2022, anticipating risks associated with widening yield spreads, the fund liquidated all convertible bond holdings and transitioned to more cost-effective, shorter-duration high-grade credit bonds.

During the two-year period without the benefit of convertible bonds, Guangfa Jutai mixed leveraged its flexible duration adjustments (maintaining between one to three years) and leverage (110%-140%) to boost portfolio yields by enhancing returns through pure debt allocation and trading.

Data from Galaxy Securities indicates that in 2023, without convertible bonds, Guangfa Jutai achieved a net value growth rate of 5.25%, leading its peer group, ranking second among the 131 similar flexible strategy absolute return target funds, all while maintaining a maximum drawdown of less than 0.8% and a Sharpe ratio of 3.65, far exceeding the group average of 0.54.

From the periodic reports, it is noted that the Guangfa Jutai Mixed Fund increased its allocation to convertible bonds starting in the third quarter of 2024, with the proportion of convertible bond investments rising from 1.33% at the end of the third quarter to 8.65% by the end of the fourth quarter.

Convertible bonds embody characteristics of both equity and fixed income assets, and due to their dual nature, they entered a favorable period alongside the bullish stock market from 2019 to 2021. However, as the stock market began to fluctuate downwards and the price-performance ratio of returns diminished, convertible bonds faced a period of stagnation

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