In recent years, the real estate market has experienced an unprecedented boom, drawing the attention of institutional investors like funds and insurance companiesTheir role has historically been crucial during periods of real estate uptrends, and the question that arises now is whether these investors will engage once again in the current market dynamics.

The introduction of policies such as the "16 Articles of Real Estate Finance" has significantly altered market perceptions, leading to a newfound optimism regarding the real estate sectorA clear manifestation of this sentiment was observed in November, when the CSI All Index Real Estate Index peaked with a monumental increase of 27.16%, shattering the record for the highest monthly gain ever recorded

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In comparison, during the bull market of 2014 to 2015, the maximum monthly increase for the index was merely 19.76%.

Analyzing institutional holding data reveals that mutual funds have significantly increased their stakes in the real estate sector over the past few quartersHowever, despite these increased investments, the weight allocated to real estate within their stock portfolios remains comparatively lowNotably, the larger players traditionally dominating the real estate investment landscape, chiefly insurance assets (including insurance companies and their associated products) and fund management plans, appear to be more hesitant to ramp up their investments.

Nonetheless, the trend of increasing positions amidst market fluctuations has been notable.

According to data from Dongfang Caifu (East Money), at the end of Q1 2022, the market value of the real estate stocks held by mutual funds surpassed that of insurance assets for the first time since Q3 2015, establishing mutual funds as the largest institutional investors in the real estate sector

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By the end of Q3, this advantage expanded further.

Specifically, at the end of Q1, mutual funds held real estate stocks worth a total of 76.2 billion CNY, compared to 57.4 billion CNY in insurance assets, indicating a ratio of 1.33:1. By the end of Q3, this total slightly decreased to 74.9 billion CNY for mutual funds, while insurance assets fell even more to 49.3 billion CNY, increasing the ratio to 1.52:1.

During the same period, the CSI Real Estate Index saw a decline of 18.76%. A comparison of this decline with the corresponding decreases in the market value of the real estate stocks held by mutual funds (down 1.71%) and insurance assets (down 14.11%) indicates that mutual funds have likely increased their holdings contrary to market trends, while insurance assets have not significantly reduced their positions.

Historically, the mutual fund industry’s heavy holdings in the real estate sector, as of the end of Q1 and Q3 2022, ranked among the top two levels in the past decade.

Until recently, the value of real estate stocks held by mutual funds had never exceeded 70 billion CNY, and only three instances have seen values above 60 billion CNY: the end of Q1 in 2013 (64.8 billion CNY), the end of Q3 in 2012 (61.6 billion CNY), and the end of Q1 in 2020 (60.8 billion CNY).

From Q3 2013 to Q3 2018, the total value of real estate stocks held by mutual funds remained below 50 billion CNY, while from Q1 2019 to Q3 2021, it consistently stayed above this threshold.

Looking at the timeline, the market value of real estate stocks held by mutual funds surpassed 60 billion CNY from Q3 2012 to Q1 2013, subsequently falling below 50 billion CNY until Q3 2018. Following that, values bounced back to above 50 billion CNY until they broke the 70 billion CNY mark in 2022.

Evidently, from an absolute numerical standpoint, mutual funds have intensified their investment in real estate stocks over recent quarters.

However, when viewed relatively, the weight of the real estate sector within the overall asset allocation of mutual funds remains significantly below historical peaks.

As of Q3 2022, mutual fund holdings totaled 3,235.2 billion CNY, with real estate representing only 2.32% of this total, marking the highest percentage in two years (previously 2.17% in Q3 2020, 1.61% in Q1 2021, and merely 1.29% in Q1 2022). However, this figure pales in comparison to the staggering 7.47% of Q3 2012 and 7.29% reported in Q1 2013.

In terms of mutual fund weightings across over a hundred classified secondary industries, real estate was only the ninth most significant sector at the end of Q3 2022. This ranking, while improved from earlier periods (where it even dropped to 18th position in Q3 2021), still lags behind ten years ago when real estate ranked as the second largest sector during Q3 2012 and the third during Q1 2013.

It’s notable that such a low ranking for the real estate sector is not a recent development, having been the 11th largest for mutual funds at both Q3 2015 and Q1 2017. Following Q3 2017, it gradually climbed the ranks from ninth to fifth by Q1 2018, peaking at third by Q1 2019. Although real estate remained the fourth largest sector by Q1 2020, it dramatically dropped to 14th by Q3 2020. The last two years have seen it crawl back into the top ten holdings in Q3 2022 for the first time in two years.

The discussed data primarily analyzed mutual fund holdings from Q3 2012 to recent quarters

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Next, we should also consider the comprehensive data from annual reports to get a complete picture.

By the end of H1 2022, the cumulative market value of real estate stocks held by mutual funds was 109.8 billion CNY, which was an increase of 4.45% (or 4.7 billion CNY) since the beginning of the year, contrasting with the 2.64% drop in the CSI Real Estate Index, indicating a probable increase in positions.

Throughout the past decade, the market value of real estate stocks exceeding 100 billion CNY within mutual funds was a rare occurrence, recorded only six timesAside from H1 2022, this benchmark was also met at year-end reports in 2021 (115.3 billion CNY), 2019 (100.4 billion CNY), 2014 (123.4 billion CNY), and twice in 2012 (127.5 billion CNY and 105.1 billion CNY mid-year).

However, a holding value above 100 billion CNY does not convey the same significance for mutual funds across different years

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By mid-2022, the real estate holdings constituted only 1.66% of the mutual funds' total stock market value (66.158 billion CNY), a stark contrast to figures from mid-2012 (9.68%) and year-end that same year (9.16%).

The data on significant holdings and comprehensive holdings both indicate that mutual funds have increased their stake in real estate in recent quarters, yet this sector's weight in mutual funds' overall stock allocations has not shown any remarkable rise.

Examining insurance assets, their holdings have notably decreased.

Historically, mutual funds have not always been the major players in the real estate sector

From Q3 2015 to the end of 2021, insurance assets played a more pivotal role, maintaining their status as the top institutional investors during this period.

It's important to note that the insurance asset data is not comprehensive but instead is derived from the periodic reports disclosed by listed companies regarding their top 10 shareholders or liquidity shareholdersIf their holdings do not qualify them to be listed among the top shareholder ranks, those holdings won’t be registered by financial analysis tools such as Wind and Dongfang Caifu, a limitation analogous in nature to mutual fund heavy holdings.

Historical data illustrates that by the end of Q3 2015, insurance assets were the top ten circulating shareholders for 21 real estate companies, boasting a cumulative holding value of 44.9 billion CNY, surpassing mutual funds for the first time.

It's also significant that in Q1 2016, insurance assets set a record by becoming the top ten circulating shareholders for 35 real estate companies, with holdings totaling 64.5 billion CNY, far exceeding the mutual funds’ reported value of 28.6 billion CNY during the same period.

Following this, in Q3 2016, Q1 2017, end of Q3 2017, and subsequent quarters in 2018, the holding values for insurance assets were recorded at 72 billion CNY, 64.7 billion CNY, 81.8 billion CNY, 92.6 billion CNY, and 83.1 billion CNY, sometimes eclipsing the mutual fund markets, which fluctuated between 23.7 billion to 44.7 billion CNY in the same manner.

By the end of Q1 2019, the insurance assets reached a historical high, with their total value surpassing 100 billion CNY for the first time, reaching 119.3 billion CNY, while mutual funds reported during that period only 59.9 billion CNY.

It's intriguing that during this period, the CSI Real Estate Index experienced its most substantial gain since 2016, with an uptick of 33.58%. However, from Q3 2019 to Q3 2022, the index only recorded a positive quarterly gain in four out of 14 quarters, with the most substantial quarter logging just 10.81% during a period when the index ultimately fell by 36.74%.

Since Q3 2019, the value of holdings among insurance assets has steadily decreased, standing at 101.2 billion CNY at the end of Q3 2019. This decline continued with values reported at 88.5 billion CNY and 88.3 billion CNY by the end of Q1 and Q3 2020, respectively, followed further by 73.2 billion CNY and 59 billion CNY at the end of Q1 and Q3 2021, finally reaching 57.4 billion CNY and 49.3 billion CNY by Q1 and Q3 2022.

In the asset composition of insurance, real estate has consistently sat in third place since the end of Q3 2015, well behind categories primarily designated as insurance II and joint-stock banks II.

The question arises, can mutual funds lead another bull market?

Apart from insurance assets, another class of institutional investors—asset management plans—exhibit significant influence over the real estate industry

Their stakeholders vary widely, including private equity firms, employee stockholding groups, and even state-owned enterprises like the Bosera CSI Financial Asset Management Plan and ICBC Credit Suisse’s CSI Financial Asset Management Plan, which entered the top ten circulating shareholders of Poly Developments in Q3 2015.

Historical data shows that asset management plans first entered the top ten circulating shareholders of real estate listed companies in Q4 2013.

However, by the end of Q3 2015, their holdings (29.7 billion CNY) had already surpassed those of mutual funds, which stood at 20.4 billion CNYTheir holdings continued to exceed mutual funds until the end of Q3 2017.

Between Q1 2016 and Q1 2018, the real estate sector was the premier focus for asset management plans.

However, post-Q1 2018, there has been a steadily decreasing trend in the investment focus of asset management plans within the real estate sector.

Despite this downturn, by Q3 2022, asset management plans still remained among the top ten circulating shareholders of 17 real estate companies, cumulatively holding shares worth 4.1 billion CNY.

The pivotal question remains: will institutional investors like insurance assets and asset management plans follow the lead of mutual funds to bolster their investments in the real estate sector? If they do not, can mutual funds single-handedly rejuvenate another bull market in real estate?