In the ever-evolving world of finance, there exists a noteworthy investment vehicle that has recently gained popularity among investors: a type of wealth management product that incorporates equity assets. This innovative approach not only enhances expected returns but also allows investors to share in the gains during bullish market conditions. But would you consider investing in such a financial product?

The rise of these “equity-linked wealth management products” is evident from both market data and feedback from financial institutions. Current statistics indicate that over 300 mixed and equity-related wealth management products are available for sale or in the fundraising phase. This surge reflects a growing interest among wealth management firms to embed equity assets within their offerings.

Industry experts have noted that the integration of equity assets broadens the potential returns of these products and diversifies their offerings. Particularly during market conditions where there is a stark contrast in the performance of stocks and bonds, known as the “seesaw effect,” these products can play a critical role in retaining clients within the banking ecosystem.

The current market dynamics show a significant uptick in the issuance of equity-linked products. Responses from various wealth management firms suggest that there is a collective desire to expand their product lines and explore the potential of more complex investment structures. “Every wealth management company is eager to launch equity-linked products. For us, this exploration of fixed income coupled with equity options is vital for enriching our lineup,” shared a source from a medium-sized wealth management company in Northern China. “Since October, some of our passively managed index products have shown considerable appreciation, with several experiencing double-digit growth. Additionally, clients can enjoy zero fees on investments or redemptions of these products, leading to increased investor interest.”

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The stock market's recovery and the emerging seesaw effect between equities and bonds have bolstered the confidence of wealth management firms in equity investments. “At the end of September, after some products matured, clients redirected their funds to the stock market, intensifying our desire to offer equity-linked products,” explained the same industry insider. “By providing solid equity-linked options, we can ensure clients remain invested within our systems, mitigating the risk of significant capital outflows.”

Liang Min, general manager of the stock investment department at Everbright Wealth Management, corroborated this sentiment, stating that as the equity market continues to recover, the acceptance of equity-focused wealth management products is on the rise. Companies are keen to accelerate the development of these products as a way to optimize their asset allocation strategies while meeting the diverse investment needs of clients.

A multi-asset exploration is taking shape as wealth management companies venture into various strategies for equity investment. Many firms currently invest in public funds, while others take a more hands-on approach by purchasing stocks directly or outsourcing investments. The push towards diversification has led to innovations in product offerings, with companies eager to explore strategies that include preferred shares, convertible bonds, and quantitative hedging methods. This ambition aims to strike a balance between yield advantage and valuation stability.

“Our exploration has reaffirmed our commitment to stability as a foundational principle,” remarked a representative from Xinyin Wealth Management, who highlighted their focus on dividend strategies by investing in high-dividend, low-volatility companies. “Historically, these strategies have yielded positive results, reinforcing the notion that with the right strategic decisions, equity investments can deliver consistent returns, even amidst market fluctuations.”

In addition to traditional strategies, firms are increasingly turning to quantitative methods for investment. By constructing multifactor models, they can systematically uncover market opportunities while employing rigorous risk controls to ensure portfolio stability. “Quantitative approaches not only enhance the scientific rigor and discipline of our investments but also help achieve absolute return objectives,” the representative added.

As the demand for these innovative products increases, there arises a need for client segmentation to better match new offerings with investor requirements. Research from the China Wealth Management Network indicates that while new equity-linked products are emerging, those with a low proportion of equity assets continue to dominate the market. Fewer than ten products with high equity allocations are currently available, and there are no ongoing fundraisings for such equity-heavy investments.

“The volatility associated with high-equity products discourages many investors,” explained a manager from a Southern China-based commercial bank. “While there is a growing risk appetite among residents, they still prefer products that exhibit stable net worth and good liquidity. At present, the issuance scale of equity-linked wealth management products remains relatively limited.”

An analysis of the market reveals that, compared to public fund products, equity-linked wealth management offerings lack adequate transparency, ease of subscription and redemption, and the issuer’s capacity to conduct thorough equity research. Furthermore, consumers still largely perceive wealth management products as substitutes for traditional bank deposits, leaving high-volatility products struggling for acceptance among retail investors.

Looking ahead, as the equity market continues its upward trajectory and the potential for profit becomes more pronounced, the demand for equity-linked and equity-based wealth management products is expected to rise gradually. Banks must adapt to this shift by segmenting their customer base, identifying those willing to embrace medium to high-risk investment strategies while catering to evolving client needs with innovative product offerings. Concurrently, wealth management firms need to invest in developing their equity research capabilities.