Recently, there has been a notable uptick in interest from fund managers toward the beleaguered pharmaceutical sector, which struggled throughout the previous yearThis shift has captured the attention of investors, resulting in a significant rise in the number of large public funds conducting rigorous research into pharmaceutical stocks, particularly those that had previously been overlookedThis transition in focus suggests an underlying need for repositioning within the sector.

Fundamental changes in the behavior of fund managers can be observed since the beginning of the yearFor instance, on January 7, the traditional Chinese medicine firm Zhenbaodao disclosed that it had been the subject of joint inquiries from multiple public funds post-New YearAmong the participating investment firms were notable names such as GF Fund, Bosera Fund, Huabao Fund, Tianhong Fund, and Haifutong FundThis coordinated research initiative indicates a collective recognition of potential within a sector that had been previously neglected.

Similarly, Sanjing Medical published an announcement on the same day indicating evaluations conducted by leading funds like Ruifeng Fund, Huitianfu Fund, and Fortis FundThese comprehensive research efforts have not only intensified but have also spread across a wide range of pharmaceutical stocks, including stalwarts such as Guilin Sanjin, Fuerjia, and Zejing Pharmaceutical, all of which were subjected to detailed analysis by major public fund players like China Construction Fund, Bosera Fund, and Southern Fund.

This strategic approach, commonly referred to as a "high-cut low" swapping strategy, reflects a seasonal trend where funds migrate from sectors marked by high growth and overvaluation to those where valuation is lower and growth has been more subduedThis is often a tactical decision made at the start of a new fiscal year.

Data indicates that pharmaceutical-focused equity funds underperformed last year, showing significant losses

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For example, even a star fund manager ranked among the top ten in performance for their overall portfolio, saw a loss in a pharmaceutical fund under their management, with returns from a tech-themed fund significantly outpacing itSuch stark contrasts underlie a broader trend of considerable losses within pharmaceutical investments, contributing to a resurgence of interest in the sector as fund managers seek potential rebounds.

Interestingly, many of the stocks scrutinized by funds still lack significant holdings in their portfoliosFor instance, despite a slew of funds engaging in research on Zhenbaodao, no fund currently lists this stock among its top ten holdingsThis discrepancy points to an opportunity for stocks that may experience major fluctuations due to increased institutional scrutiny without existing backing from funds.

Similarly, the case of Fuerjia reflects the same potential for emerging fundsAs of now, Fuerjia does not appear among the top holdings of Bosera's healthcare fund, suggesting that future investments may be on the horizon given that the fund manager typically only conducts personal research when expecting substantial acquisitionsThis aligns with general trends indicating that as funds continue their investigative efforts, there may be an increase in financial commitments to promising pharmaceutical stocks.

The correlation between intensive research by public funds and potential stimulative effects on stock prices is further exemplified in recent trendsFor instance, Guotai Fund discovered the promising stock of Yimai Tong in the Hong Kong market, integrating it into their fund's holdings, effectively transitioning the stock from obscurity to prominence within the investment communityAs a result, Yimai Tong not only became a critical holding for Guotai Fund's offerings but also performed admirably within the pharmaceutical sector throughout 2024. A parallel situation was observed with the stock of Yunding Xinyao, where the acquisition by just one public fund propelled its status as one of the top performers in terms of share price increase over the past year within the Hong Kong pharmaceutical sector.

As economic recovery appears to gradually gain traction, certain segments within the healthcare sector are becoming increasingly attractive for investment, notably the consumer healthcare sector

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