Fund Manager Outperforms Peers With 24% Return By Focusing On Gen Z Stocks

Xie Tianyuan, a 30-year-old fund manager, has outperformed his peers this year by focusing on stocks popular among Generation Z, such as Pop Mart International Group. His Penghua Selected Return Flexible Allocation Mixed Fund has returned 24% this year, placing it in the top 3% among approximately 2,300 similar funds. This success marks a significant turnaround from the fund's previous performance, which was hindered by investments in traditional sectors like alcoholic beverages and farming.

Xie took over the management of the fund in early 2024 and quickly replaced the fund’s top holding, Kweichow Moutai Co., a baijiu distiller, with Pop Mart, the maker of popular Labubu dolls. This strategic shift reflects the broader cultural changes in China, driven by digital influence and youth spending, which are creating new investment opportunities amidst the country's economic challenges.

Xie's conviction in Pop Mart was strengthened after observing the popularity of its products in Thailand, which he saw as a sign of "non-linear growth with every metric showing breakout potential." His personal background, immersed in Japanese anime culture and being a member of Generation Z, has given him a unique perspective on identifying promising brands and products that resonate with young consumers.

Xie's investment strategy focuses on companies with breakthrough products, innovative business models, and appealing sales channels. His top pick, Pop Mart, accounted for 10.5% of the fund’s total assets as of March. Other significant investments include Mao Geping Cosmetics Co., Chongqing Baiya Sanitary Products Co., and Yantai China Pet Foods Co.

The fund's strategy targets the Gen Z consumption trend, where purchasing decisions are driven by emotional triggers and hobby interests. This behavioral shift has fueled rallies in specific sectors of China’s stock market, particularly after the momentum from artificial intelligence began to fade. Companies at the heart of this trend, such as Pop Mart and Laopu Gold Co., have seen substantial gains this year.

Xie’s fund includes shares that trade in the mainland as well as in Hong Kong. A gauge for Chinese stocks listed in Hong Kong has risen 20% this year, while the mainland’s benchmark, the CSI 300, had edged down 0.3% so far this year. The rally has expanded to include sectors like medical aesthetics, pet foods, and even vape products, with sparkling yellow wine being another potential area for investment.

Despite the recent rally, there are signs of cracks in the consumption-driven market. Pop Mart's stock tumbled after a commentary in the People’s Daily called for stricter regulation of “blind-box” toys. Laopu Gold Co. also faces selling pressure after the lock-up period from its IPO expired. Many Gen Z stocks are near or above their average price targets, leading analysts to constantly adjust their outlook.

Xie acknowledges that valuations in the sector may be getting ahead of fundamentals, with some stocks already pricing in earnings three to five years ahead. However, he remains bullish on the stocks he has heavily invested in, believing that the gains are rooted in earnings and that growth for some companies is underestimated or in the early stages of their life cycle.