Deploying "Water Sellers" to Fight Volatility: HALO Assets Become the New Favorite for Public Fund Hedging

Securities Times Reporter An Zhongwen

In the context of AI narratives facing the dual possibilities of “empowerment” and “substitution,” the HALO trading strategy has recently quietly become a new focus in the public fund industry.

As AI technology advances deeply, the “AI+” logic that once supported high valuations of tech stocks is beginning to attract attention from some public funds, especially as several star tech stocks have significantly retreated from their highs. Fund managers are increasingly worried about the shift from “empowerment” to “substitution” of technology. Meanwhile, the HALO strategy, characterized by heavy assets and low淘汰 (obsolescence), is gaining appeal due to its emphasis on business model resilience and pursuit of sustainable operations. In volatile environments, it is gradually emerging as a new hot topic among public fund research and discussion.

Changes in Fund Heavy Holdings Logic

Narrative Strategies Shift Toward Hedging

While new technological revolutions bring opportunities, they also carry disruptive risks. The previously popular “AI+ vertical applications” investment theme, which relies on light assets and high elasticity, is now facing tests. Since the end of 2025, some institutional funds have become more cautious about the prospects of related companies, and market sentiment has cooled significantly.

For example, a company once valued at over $100 billion was a heavy holding in many public QDII funds. As concerns about AI substitution deepened, it has basically been removed from the top ten holdings of public QDII funds since December last year, with its stock price falling about 50% from its high.

This narrative logic has also extended to the Hong Kong stock market, affecting the allocation strategies of public funds. Several previously concentrated tech stocks, including HuiLiang Technology, Paradigm Intelligent, Maifu Times, and Meitu, have recently been reduced by some public funds. Since their peaks in 2025, these stocks have generally declined by 30% to 60%.

In contrast to the adjustment of light-asset tech stocks, companies with tangible assets, physical attributes, stable business models, and resistance to AI disruption are beginning to attract fund managers’ attention. This is the current hot and trending HALO trading strategy. Zhang Qisi, a fund manager at Southern Fund’s Technology Fund, explained that HALO is an abbreviation for Heavy Assets, Low Obsolescence, a core strategy recently proposed by mainstream Wall Street institutions. Ultimately, the past two years’ surge in AI-related stocks has far outpaced the broader market, prompting capital to seek more cost-effective related targets, mainly companies with physical moats and irreplaceability.

Public Funds Focus on Sustainable Operations

HALO Strategy Embraces Low淘汰 (Obsolescence)

When tech star stocks face valuation pressure due to the risk of business model substitution, public funds are turning their attention to the HALO strategy, which emphasizes “sustainable operations.” The core of this strategy is to select companies with high barriers to entry and rigid demand, supported by two pillars: first, heavy assets, meaning companies rely on physical assets (such as property, power grids, equipment) to build moats, with high costs of replication, long construction cycles, and strict entry thresholds; second, low淘汰 (obsolescence) rate, meaning their businesses are less affected by technological iteration, with stable demand, capable of crossing cycles, and providing continuous cash flow.

Many public fund professionals point out that the key feature of HALO targets is this “sustainable and hard to subvert” business model.

Chen Boyang, Assistant Fund Manager at Invesco Great Wall Research Department, said that the essence of HALO trading is to eliminate unprofitable, unsustainable targets and to identify companies with long-term irreplaceable attributes and sustainable operations. The recent rise in strategy is mainly driven by three factors: first, the previous AI main theme trading was crowded, with profit-taking and rotation needs, and heavy-asset, low-valuation targets with sufficient safety margins; second, the reconstruction of global supply chains and accelerated AI industrialization have increased demand for hard assets such as power, computing infrastructure, and physical terminals; third, institutional funds are shifting from high to low valuations, further reinforcing capital flow.

“AI has a significant potential impact on light-asset business models, while heavy assets have a relative safety advantage,” Chen emphasized. Under the high volatility and cyclical nature of the tech sector, institutions are beginning to explore long-term, cash-flow-generating targets that can hedge risks. The market needs “stabilizers” in the portfolio, which is also a key reason why HALO strategies emphasize sustainable operations.

Wei Fengchun, Chief Economist at Chuangjin Hexin Fund, stated that by 2026, AI technology will not yet be fully industrialized. Traditional heavy assets are experiencing a “new bloom on old trees” under new demands, promoting an upgrade of HALO assets from traditional value stocks to those with both value and growth attributes. HALO assets are the “salespeople” of the new technological revolution, providing underlying support such as electricity, resources, and infrastructure for AI and other new productive forces.

Different Applicability or Divergence

Disagreements Remain on HALO Strategy

However, in the face of rapid AI technological evolution, some public fund professionals have not reached a consensus on the applicability of the HALO strategy, and industry opinions vary significantly.

“HALO trading is a perspective rooted in Western markets; it depends on regional economic conditions. Simply copying it to the A-share market may not be suitable,” Zhang Qisi from Southern Fund told Securities Times. He explained that the U.S. infrastructure approval and construction capabilities are relatively weak, and electricity marketization is volatile. The logic of “AI consumes electricity, electricity prices rise, and investment in power” holds in the U.S., but in China, with developed infrastructure and a different electricity pricing mechanism, directly applying this logic may not be smooth.

Chen Boyang also said that HALO trading should be balanced with technology growth styles, and a diversified allocation is more conducive to expected returns. Under the premise of maintaining the main theme, the two strategies complement each other and rotate, which can also help elevate the valuation of traditional industries. However, if the AI narrative reverses or impacts market risk appetite, situations different from past experiences may occur—traditional industry assets might no longer be considered safe.

Liu Kaijie, an index researcher at E Fund, believes that HALO assets are still highly regarded because of their sustainable value, especially in the AI era. He emphasized that HALO’s sustainable value also benefits from AI development; it is just that, due to their unique asset attributes, these assets can add a layer of protection to stock portfolios when AI narratives are questioned.