Bull markets, heavily investing in brokerages and stock trading apps will always outperform the market, right? Golden Eagle Cycle Select tells you, you might end up losing so much you'll be in tears.

The bull market has been going on for more than a year, and brokerage stocks should be the category that benefits the most. Stock trading software is probably doing well too—this is a simple belief held by many investors. After all, when the market is active and trading volume rises, brokerage commission income increases; stock trading software users become more active. Logically, it seems airtight.

Not only retail investors think this way—some fund managers do as well. But reality is often harsher than people imagine. The blood-drenched performance of Lin Longjun, the fund manager of the Eagle Cycle Select Flexible Allocation Hybrid Fund (004211), tells us: holding brokerages and stock trading software with heavy weights not only may not outperform the broader market—it may even make you lose so badly that you cry your eyes out.

01 Shocking performance

First, look at a set of data:

As of March 31, the return of Eagle Cycle Select A this year is -15.2%, the return for the most recent one-year period is -4.59%, and the return for the most recent two years is -19.34%.

What does this mean? The net value of this tiny fund is almost back to the starting point of the current bull market.

Even harder to accept is that this fund was established on January 29, 2018. It has been more than 8 years, yet its latest unit net value is only 0.65 yuan. In other words, if you bought the fund when it was launched and held it until now, over more than 8 years you didn’t just fail to make money—you lost 35%.

02 Extremely concentrated portfolio structure

Open the latest holdings of Eagle Cycle Select, and you’ll see a surprising combination:

As of the end of last year, among the fund’s top ten heavy-holding stocks, 6 are brokerage stocks and 4 are stock trading software stocks.

Specifically:

Tonghuashun (300033.SZ): position weight 8.00%

Zhinan Zhen (300803.SZ): position weight 7.25%

Orient Securities (600958.SH): position weight 7.15%

Guosen Securities (002736.SZ): position weight 6.76%

Wealth Trend (688318.SH): position weight 6.20%

Zhongke Jincai (002657.SZ): position weight 6.17%

GF Securities (000776.SZ): position weight 6.04%

Caitong Haitong (601211.SH): position weight 5.45%

Huatai Securities (601688.SH): position weight 5.15%

Yangtze Securities (000783.SZ): position weight 4.78%

The combined allocation to brokerages and stock trading software is as high as 62.95%, almost occupying two-thirds of the fund’s stock portfolio.

03 Serious mismatch with the fund name

This fund is called “Cycle Select.” By normal logic, it should mean selecting high-quality companies across different economic cycles, favoring different industries, and making flexible allocations.

But in reality, it seems that fund manager Lin Longjun has a unique interpretation of the word “cycle.” In the fund’s quarterly report, he explains his investment logic as follows: “This portfolio basically continues the approach from the third quarter. The focus remains on positioning the brokerage industry where earnings and valuation are well matched and where there is resonance. We observe that in the third-quarter reports of most brokerages, their performance shows a pattern of high year-over-year and quarter-over-quarter growth. To a certain extent, there is a divergence between valuation and fundamentals. We believe this divergence is not sustainable. Therefore, we maintain sufficient patience and confidence in the core allocation, and keep holding on to our conviction without letting go!”

Alas, I’ve seen how enchanting the green hills are; I suppose the green hills should see me the same way.

The question is: can brokerages and stock trading software truly represent “cycles”? If you follow the traditional cycle industry classification, this should belong to the financial and technology sectors, not typical cyclical industries such as steel, coal, nonferrous metals, energy, and chemicals.

If you really held onto true cyclical stocks—such as oil, coal, and nonferrous metals—this fund likely wouldn’t have lost so badly.

More importantly, when this kind of persistence of “keeping holding on to our conviction without letting go,” under continued performance that trails both the benchmark and the market, is it still worth sticking with?

04 Warning from shrinking scale and underwhelming performance

The latest size of Eagle Cycle Select is only a bit over 20 million yuan, already nearing the liquidation line. For a fund that has been around for more than 8 years, this says it all—investors are voting with their feet.

Fund manager Lin Longjun has a solid resume: a master’s degree in economics from Shanghai University of Finance and Economics; previously served as a product manager, researcher, and fund manager assistant at Xingquan Fund; and currently serves as the assistant general manager of Eagle Fund and the general manager of the absolute return investment department.

But credentials are one thing; performance is another. Since Lin Longjun took over the fund on December 31, 2022, Eagle Cycle Select has not delivered satisfactory returns to investors.

Eagle Cycle Select’s case gives us several important lessons:

First, don’t blindly trust industry logic. Brokerage stocks and stock trading software should benefit in a bull market—that’s the theoretical logic. But actual market performance is often far more complex and requires considering multiple factors such as valuation, policies, and capital flow directions.

Second, excessive industry concentration is a double-edged sword. When you get the industry right, high concentration can bring excess returns; but once you get it wrong, losses will be amplified as well. With more than 60% of the positions concentrated in two highly correlated industries, the risk exposure is too large.

Third, the fund name may just be a “front.” It’s called “Cycle Select,” but in reality it heavily holds brokerages and software. This mismatch between name and substance is not uncommon among public mutual funds. Investors can’t just look at the name; they must look at the actual portfolio holdings as well.

Fourth, scale is the acid test of performance. When a fund’s scale keeps shrinking to the tens-of-millions level, it often means that its investment strategy is not recognized by the market, or that its performance has been poor for a long time.

05 Conclusion

When the bull market comes, will a heavy allocation to brokerages and stock trading software definitely make money? Eagle Cycle Select has answered “no” with real money.

Investing is never a simple linear logic. When everyone believes a certain logic “should” hold true, the market often makes its own choice. For ordinary investors, when choosing a fund you can’t just look at the name and concepts—you need to dig deeper into its actual holdings, industry allocation, historical performance, and the fund manager’s investment philosophy.

Otherwise, you might not only fail to make money in the bull market; you could end up crying alone while others celebrate.

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