In the era of "over 10,000" products, liquidation seems to have become commonplace. However, many details hidden behind it have brought fresh explanations to the market, triggered many thinking, and continued to promote the supply and demand clearance of the market.
From the data of the past ten years (2014 to 2023), ** liquidation has accelerated in the past five years (2019 to 2023). According to wind data, as of December 26 this year, the number of liquidations** since 2023 has reached 256, a new high in the past five years. Not only that, the number of liquidations in 2023 has also hit a record high since the beginning of the public offering industry in 1998. In addition, the number of FOF liquidations in 2023 exceeded double digits, soaring to three times that of 2022, and the number of ETF liquidations also increased rapidly.
Based on the analysis of the 10-year dimension data, the phenomenon of liquidation also reveals certain "regular characteristics" that few people have discovered. For example, 85% of liquidations do not live to the fifth year, becoming the "five-year curse" of liquidation. For another example, liquidation is not only related to scale and performance pressure, but also related to excessively high rates, making high rates the hardest hit areas for liquidation. In addition, from the perspective of the development trend of ** products, the phenomenon of liquidation has intensified in recent years, which is actually the "liquidation tide after the decline of thematic investment" in the ** industry.
The above phenomenon and analysis have not only become the latest footnote to the "normalization of liquidation", but also lead to a classic question: under the normalization of liquidation, how should the people make decisions?
The number of liquidations** in 2023 hit a five-year high.
According to wind data, liquidation has become a common industry phenomenon from individual cases, and complete statistics are available, starting in 2014. The number of liquidations was 11 that year, and then increased year by year, and quickly exceeded 100 in 2017. Since 2017, the number of liquidations** has remained in the triple digits and soared to 430 in 2018, the highest level in history. In 2019 and 2020, the public offering industry entered a new round of vigorous development, and the number of liquidations dropped to less than 200. However, from 2021 onwards, the number of liquidations** has risen again, reaching 254 in 2021 and 235 in 2022. According to Wind, as of December 26, the number of liquidations in 2023 reached 256, a record high in the past five years, second only to 2018.
List of the number of liquidations in the past 10 years;**wind, as of December 26).
In response to the liquidation of the past decade, Morningstar recently released a special research report. The research report pointed out that the number of liquidations** in 2018 reached an all-time high, which was caused by multiple factors. On the one hand, the new regulations on asset management issued in April 2018 require financial institutions not to promise to guarantee principal and returns when carrying out asset management business, and to classify shares of publicly offered products, which has led to the gradual withdrawal of capital protection and grading. On the other hand, in the context of strict supervision, deleveraging and de-nesting of banks' outsourced funds, the sharp ebb of outsourced funds has led to the acceleration of product liquidation. In addition, the strict restrictions imposed by the regulator on "mini-**" and the superimposed environment in 2018, the cost and performance pressure of ** company have liquidated many "mini**".
Morningstar's statistics on the number of liquidations per calendar year and the ratio of liquidations to new issuances over the past decade found that both indicators showed an upward trend over the past five years (2019 to 2023). Taking 2023 as an example, brokerage China reporters found that in addition to maintaining a high total amount, liquidation** also presents three new structural characteristics:
First, the **type** of liquidation hit a record high. As of 26 December, there are 61*** liquidations so far in 2023, up from 58 in 2022 and 40 in 2020. Even in the 2018 liquidation year, there were only 31 **type** liquidations.
Second, the number of FOF** liquidations exceeded double digits, reaching 12. Specifically, the liquidation of FOF products first appeared in 2022, but only 4 products were liquidated that year, and the number of liquidations in 2023 soared to three times that of 2022. Among the 12 liquidated FOFs, 7 are pension FOF products.
Third, the number of ETF liquidations has increased rapidly. According to Wind, even in 2018, only 13 ETFs were liquidated, and in 2019 and 2020, only 5 and 13 ETFs were liquidated, but the number of liquidations in 2021 and 2023 has risen sharply, reaching 25, 34 and 32 respectively.
85% of liquidations** do not survive to their fifth year.
One of the reasons why the number of liquidations has increased rapidly after 2019 is that the industry has accelerated the issuance of new products at market heights in recent years. However, after the issuance, the track ** fell back, and the holder chose to redeem after suffering losses. The performance pressure superimposed on the shrinkage of scale and share made the new ** reduced to a mini**, and finally went into liquidation.
Morningstar captured this trend in a research report, calling it the "five-year curse" of survival. Morningstar's statistics on the survival of all liquidations in history found that the majority closed early in their lives, with about 85% of these samples not even surviving to their fifth year. Taking the liquidation in the first 11 months of 2023 as an example, 181** "died" after less than a year of establishment. Morningstar believes that part of the reason is that the overall market is relatively sluggish, resulting in the dual pressure of redemption and net worth, and eventually many products are liquidated.
Data**: Morningstar Direct as of November 30, 2023).
The explanation of the phenomenon of liquidation, size and performance are well-known reasons, but there are not many comprehensive and thorough quantitative analyses. Morningstar compared the average asset size of the first four quarters of the liquidation with the average size of all the first in the market that year and found that in the past five years, the average size before the liquidation hovered around 100 million yuan, and if the product was less than 50 million yuan for 60 consecutive working days in the process of struggling to survive, it would be liquidated and eliminated from the market.
Morningstar Research Report pointed out that due to the law of economies of scale, the probability of liquidation of small-scale ** is greater than that of large-scale**, mainly because the management fee income generated by the smaller ** is not enough to support the operating costs of the portfolio. Specifically, compared with the scale of 100 million yuan and 1 billion yuan, the operating cost may be almost the same, but the profit is not on the same level. In particular, the management fee income of "mini**" is very limited and cannot cover operating costs such as investment researchers, back-office liquidation, and information disclosure. If you need to expand the scale of the market through continuous marketing in the later stage, the marketing cost is also a large expense, and it may not be able to achieve good results.
When the market is not profitable, the risk of products with poor performance becoming "mini" is further increased. "Compared with the scale of the initial offering, the company should pay more attention to improving the performance of existing products, combine its own investment and research capabilities and focus on customer needs, to provide investors with truly long-term performance competitive products." Morningstar Research reported.
High rates** are the hardest hit areas for liquidation.
In addition to superficial reasons such as poor performance, liquidation is also associated with excessively high rates. Morningstar's statistics show that high rates** are the hardest hit areas for liquidation. As the rate increases, so does the likelihood of liquidation.
Specifically, Morningstar Research Report uses the arithmetic average rate (Morningstar's net rate represents the proportion of annual ** management fees, custody fees, sales service fees and other operating expenses to ** annual average net assets) to study the fees of public offering ** to reflect the actual pricing level of ** company.
Morningstar sorted the **type** and bond** according to the rate from lowest to highest, and divided them into five equal parts. It was found that over the past decade, the highest rates of **type and bond type** had 17% and 32% of liquidations, respectively, almost double and four times that of the cheapest rate group. In the ** type and bond type, investors have chosen cheaper products, and the probability of liquidation and closure of more expensive ** shares has increased significantly.
Data**: MorningStar Direct as of December 31, 2022).
In addition, liquidation can also reflect the overall development trend of the industry. After sorting out the types of liquidations in recent years, Morningstar pointed out that this is "a wave of liquidation after the decline of industry-themed investment". To some extent, this provides an explanation for the new characteristics of liquidation observed by the above-mentioned brokerage Chinese reporters.
In recent years, investment opportunities in emerging industries have emerged (such as new energy, artificial intelligence, etc.), the market structure is obvious, and the investment in thematic tracks is hot, and the relevant industry indices have risen attractively. While the active excess return is declining, the industry theme is sought after by investors, which has boosted the rapid development of the industry theme ETF from the demand side. On the supply side, due to the serious homogenization of broad-based index products in the market and the increasingly fierce competition, ** companies have targeted subdivided industries or theme tracks to seize the opportunity. On the one hand, the explosive growth of ETFs**, on the other hand, the scale of some ETFs is difficult to grow, and they are gradually reduced to 'mini**' and are on the verge of liquidation. Morningstar Research reported.
Morningstar has observed that the number of passive** product liquidations has climbed in the last five years, taking 2023 as an example, more than half of the 57 passive products in liquidation as of the end of November this year are ETF products. "The domestic ETF market is still in a period of rapid development, and seizing market share through new issuances is still a priority. With the maturity of the development of the industry, the stability of the competitive landscape, and the ebb of track-themed investment, a considerable number of ETF products will inevitably be liquidated after the fierce market competition, which is also an indispensable part of the healthy development of the market. On the other hand, although there is more room for domestic active management to obtain excess returns, since 2019, the excess returns of active partial stocks have begun to decline, and the development model of performance-driven active management has encountered challenges. ”
Data**: Morningstar Direct as of November 30, 2023).
You should choose a relatively large size**, but not as big as possible.
The study of ** liquidation should ultimately be based on investment choices. For example, in recent years, the industry has continued to ask the question: Will liquidation become the norm?How do investors make decisions?
Morningstar pointed out that since November 2017, when the regulator attached importance to and strengthened the management of "mini **", the public ** product has ushered in a "supply side" reform. With the rate reform since July 2023, ** liquidation will gradually become normalized. For ** companies, the liquidation of "mini **" can better focus on products that are in line with its own investment and research competence circle, reduce operating costs and improve operational efficiency.
From the perspective of industry development, Morningstar said that taking the U.S. market as an example, it is common for long-term poor performance to lead to "miniaturization" of scale and liquidation. For example, from 2005 to 2020, the ratio of the number of annual closures to the number of new issuances in the U.S. market also increased from 05 gradually rises to 15. To a certain extent, it shows that the speed of elimination is significantly higher than the speed of new issuance. About 40% of all the products liquidated during the period will not escape the "5-year curse" mentioned above, and the probability of liquidation with poor performance is higher. On the whole, the natural survival of the fittest in the industry has maintained the ecological health of the industry to a certain extent.
However, Morningstar said that there are currently more than 10,000 first-class products in the industry, and products with a high degree of homogeneity far exceed the needs of investors. If the scale is too small, it will also increase the apportioned product operating costs. Although there will be a certain risk of loss in liquidation, investors can withdraw as soon as possible and choose new products again.
If you want to avoid liquidation, Morningstar recommends that investors try to choose a relatively large scale and pay attention to the dynamic changes in the scale. However, the larger the scale, the better, and the combination of the product's risk-return characteristics, the manager's investment management ability and investment methods, investors' risk appetite and financial goals, etc.
Editor-in-charge: Wang Lulu.
Proofreading: Wang Wei.