China Galaxy Securities: If liquidity tightens in the second half of the year, we will maintain a cautious defense, but consensus on funds for science and technology innovation and energy is expected to continue.

China Galaxy Securities released its mid-term report, the team believes that in the future, it is recommended to focus on "technology innovation + manufacturing upgrade" as the main theme, prioritize the allocation of technology broad-based ETFs, AI, semiconductors, satellite industry, and maintain cash or short-term bond positions; on the options side, moderately use protective put options to manage downward risks. The research report summary is as follows: Under macro pressures, liquidity loosens first and then tightens, momentum dominates growth recovery, funds focus on advanced manufacturing: In the first half of 2026, economic indicators fluctuated downward, liquidity loosened first and then tightened, momentum style persisted throughout, growth and volatility styles gradually warmed up in the middle of the year, while value and dividend defensive styles weakened. Funds are highly concentrated in advanced manufacturing sectors such as machinery, electronics, and telecommunications, with the consumer industry generally experiencing a downturn; the transition within technology and manufacturing from financial technology, aerospace to AI, semiconductors, chip design, and other frontier industry chains. Looking ahead to the second half of the year, if liquidity tightening does not change, maintain a cautious defensive stance, but consensus is expected to continue on the technology innovation and energy sectors, recommend paying attention to the technology innovation 50, Growth Enterprise Market 50, and related thematic ETFs. Active equity fund shares have stopped falling, manufacturing concentration is outstanding, and new quantitative development drives growth: Active equity funds' excess returns relative to the CSI 800 have stabilized at high levels, the downward trend in shares since 2023 reversed in the first quarter of this year, and investor confidence gradually recovered. Outstanding funds (with excess returns exceeding 10%) are concentrated in manufacturing industries such as electronics, non-ferrous metals, and power equipment, with high concentration of holdings. In terms of quantitative funds, the growth in size of index-enhanced products is mainly driven by new products (especially broad-based), while active quantitative funds rely on existing performance to drive growth, with significant performance differentiation. Quality style was weak in the first half of the year and is expected to improve in the future, strategy to enhance by mining financial report footnotes: The excess returns of quantitative stock selection strategies in 2026 for state-owned enterprises, technology, and consumption themes were not significantly strong. On one hand, the bullish sentiment is high and the quality style is weak; on the other hand, there has been significant differentiation in the A-share market recently. Quantitative stock selection has been neutral in market value, industry diversification, leading to a pullback in excess returns in April and May. However, since the end of May, the market sentiment has become rational, with the upcoming semi-annual report period. Fundamental quantitative stock selection will continue to demonstrate its advantages. In the future, we will mine incremental information from financial report footnotes, develop new fundamental factors from multiple perspectives such as costs, profits, research and development, and risks, and build a comprehensive database and strategy system for Galaxy Jin Gong fundamental factors. Under macro pressures, ETFs shift towards thematic defense, with technology leading rather than chasing highs: In the first half of 2026, the market was under macro pressure and structurally differentiated, with liquidity shifting from loose at the beginning of the year to tightening in April-May. Asset allocation has shifted from "overweight bonds" to "cash is king"; new ETF allocations have shifted from broad-based basic positions to industry themes, cross-border and defense tools, with technology manufacturing (chips, semiconductors, power grid equipment) leading the gains but not simply chasing highs, with communications, medicine, and other sectors receiving increased allocations during the pullback phase; after policies are implemented, ETF competition will return to benchmark constraints and allocation functionality. Looking ahead to the second half of the year, if there is marginal improvement in liquidity, additional allocation to technology-themed ETFs such as technology innovation, AI, and semiconductors is possible. ETF strategy differentiation in style momentum is superior, protective put options perform well: Since the beginning of 2026 until May, the performance of various ETF quantitative strategies has differentiated: macro timing has been stable, capturing asset allocation switches well; style rotation and momentum selection have benefited from momentum dominance and the return of growth styles, with outstanding performance; percentile regression within the technology manufacturing internal themes rotation is more adaptive, with high profit potential; fund flows are pressured by frequent industry rotation and cold consumer sectors. In basic options strategies, covered call writing of growth style targets such as technology innovation 50, Growth Enterprise Market are relatively advantageous. In the future, it is recommended to focus on "technology innovation + manufacturing upgrade" as the main theme, prioritize the allocation of technology broad-based ETFs, AI, semiconductors, satellite industry, and maintain cash or short-term bond positions; on the options side, moderately use protective put options to manage downside risks.