Summary of Conference Call Notes Industry Overview - The conference call discusses the domestic public equity fund industry in China, focusing on the performance and management of actively managed equity funds under new regulatory guidelines [1][4][5]. Key Points and Arguments 1. **Performance Issues of Active Equity Funds** - Active equity funds have high annualized tracking error, with a median range of 10% to 15%, indicating poor stability [1][5]. - As of the end of 2024 and May 2025, the proportion of fund managers underperforming their benchmarks by 10% over three years is 66% and 54%, respectively, leading to significant risks of performance-related pay declines [1][5]. 2. **Mismatch in Investment Style** - The underperformance of active equity funds is attributed to a mismatch between market preferences for dividend value and the growth-oriented focus of active management [1][8]. - Long-term, the differences in excess returns due to style deviations are diminishing [10]. 3. **Need for Benchmark Adjustment** - Fund managers are encouraged to adjust performance benchmarks to better align with fund characteristics, such as changing from the CSI 300 to a growth index, which could significantly reduce portfolio deviation and enhance performance stability [1][11]. 4. **Regulatory Emphasis on Performance Benchmarks** - The China Securities Regulatory Commission (CSRC) emphasizes the importance of performance benchmarks in its action plan for high-quality development of public funds, including guidelines for setting, modifying, and disclosing benchmarks [3]. 5. **Current Benchmarking Practices** - The current benchmarking practices in the domestic public equity fund industry are criticized for being overly concentrated on the CSI 300 and CSI 800 indices, which fails to effectively differentiate product tracks [1][4][7]. 6. **Strategies for Improving Tracking Accuracy** - Two main strategies are proposed to address the poor tracking of benchmarks: adjusting performance benchmarks to reflect actual investment strategies and optimizing portfolio management to better track established benchmarks [6][13]. 7. **Impact of Market Conditions on Performance** - The performance of active equity funds is highly variable, performing well in bull markets but lagging significantly in bear markets [5][8]. - Style deviations may yield short-term excess returns but can lead to increased risks and potential losses in bear markets [9][10]. 8. **Optimizing Fund Management Approaches** - Fund managers can enhance performance by combining active management with index tracking, which has shown better results in terms of excess return probability and annualized returns [2][12][15]. - Specific optimization methods include constraining industry and market capitalization deviations and selecting optimal stock weights [13][15]. Other Important Content - The call highlights the need for a more nuanced understanding of performance benchmarks and their implications for fund management and investor outcomes [4][12]. - The discussion also touches on the importance of aligning fund strategies with market conditions and investor expectations to improve overall fund performance [16].