CMSC: Public fund position allocation rebalanced in Q3, trimming high-flying tech and adding to pharmaceuticals, consumer, and dividend sectors

CMSC released a research report stating that in 2026Q3, both active and passive equity fund sizes contracted, with active funds seeing a larger decline and passive fund size once again surpassing active funds; positions across all fund types generally declined, holdings concentration fell back, and the Hong Kong stock allocation ratio rebounded somewhat. Position allocation was rebalanced, with Main Board allocation increased and ChiNext/STAR Market allocation decreased; technology was trimmed, while allocations were increased to laggard sectors (pharmaceuticals and consumer) and dividend defensive sectors (banks, coal, petroleum & petrochemicals), though technology sector holdings remain at elevated levels. In 2026Q3, both active and passive equity fund sizes declined, with passive fund size once again surpassing active funds. In Q3 2026, A-shares trended downward amid volatility, and overall public fund market value contracted. In Q3, active fund size decreased by RMB939.177 billion to RMB4.06 trillion, while passive funds decreased by RMB120.3 billion to RMB4.20 trillion. Positions across all fund types generally declined, with the average position of active equity funds falling to 85.72%, down 1.54 percentage points from the previous quarter; holdings concentration of active equity funds also fell back in tandem. From the subscription and redemption situation of existing funds, the net redemption scale of active funds narrowed, while passive funds shifted from large net redemptions to large net subscriptions; combining existing fund subscriptions/redemptions with newly issued funds, equity funds shifted from net outflows to net inflows in 2026Q3, contributing RMB404.1 billion in incremental capital in Q3, mainly from passive funds. Fixed-income-plus funds increased positions against the trend in Q3. In aggregate terms, the heavy holdings of bond funds declined slightly to RMB210 billion in Q3, still the second-highest level in history, and the decline in holdings was mainly due to falling stock prices; we estimate that bond funds made net purchases of RMB23.4 billion in stocks against the trend in Q3, with telecommunications, pharmaceuticals, and banks being the directions with more position increases. Overall, the repositioning path of active equity funds in 2026Q3 shifted from previously concentrated allocation to rebalancing. On the adding side, capital flowed back to underweighted sectors and dividend-oriented directions. The pharmaceuticals & biologics weighting rose 3.90 percentage points in the quarter, of which medical services rose 2.52 percentage points; banks and coal rose 1.06 and 0.61 percentage points, respectively. On the trimming side, the previously crowded technology hardware and new energy chains saw the most obvious reductions, with electronics and power equipment falling 6.88 and 1.38 percentage points, respectively, of which semiconductors and batteries fell 5.31 and 0.99 percentage points, respectively. Meanwhile, food & beverage, household appliances, and automobiles rose 0.70, 0.50, and 0.88 percentage points, respectively, with baijiu, white goods, and auto parts becoming the main areas of replenishment. TMT weighting still exceeded 50%, with electronics and telecommunications both at the 98th percentile of the past decade, and technology holdings remain at elevated levels. In terms of changes in passive fund holdings, the weightings of pharmaceuticals & biologics and banks rose slightly, while electronics and telecommunications declined. In 2026Q3 passive fund heavy holdings saw the Main Board share rebound and ChiNext/STAR Market share decline. In terms of style preference, the heavy-holding shares of SSE 50, CSI A50, and CNI Growth ranked among the top in quarter-on-quarter increases, while TMT, STAR 50, and ChiNext Index ranked among the top in declines. Relative to active funds, passive funds remain overweight in non-bank financials, food & beverage, and banks, while the underweight in electronics, building materials, and machinery equipment narrowed somewhat. In 2026Q3, the Hong Kong stock allocation ratio in active fund heavy holdings rebounded. In 2026Q3, the total scale of active fund heavy holdings in Hong Kong stocks reached RMB213.7 billion, with its share of total market value of all heavy holdings rebounding from 8.73% in 2026Q2 to 10.74%, up 2.01 percentage points quarter-on-quarter. The number of heavily held Hong Kong stocks increased from 355 to 386, and the number of Hong Kong stocks among the top 50, 100, 300, and 500 heavy holdings all rebounded, with the allocation ratio of Hong Kong stocks in active fund heavy-holding portfolios improving markedly.