China fund beats 97% of friends by shopping for Pop Mart, dumping Moutai

Xie Tianyuan’s Penghua Selected Return Flexible Allocation Mixed Fund has returned 24% this year, ranking in the top 3% among roughly 2,300 peers, data from fund tracker East Money Information Co. show. That’s a turnaround from its recent past when holdings in traditional sectors like alcoholic beverages and farming dragged performance. 

The Shenzhen-based fund manager, who took over early 2024, wasted little time in replacing what was then the fund’s top holding Kweichow Moutai Co., a baijiu distiller, with the maker of smash-hit Labubu dolls, Pop Mart. 

His repositioning for the fund, which has about $7 million in assets under management, reflects how cultural shifts—brought on by digital influence and youth spending—are creating opportunities for Chinese investors navigating broader challenges in the world’s second-largest economy.  

His conviction strengthened after witnessing the popularity of the toymaker’s products in Thailand, which, he says, signaled “non-linear growth with every metric showing breakout potential.” 

Growing up immersed in Japanese anime culture—his desk is adorned with Dragon Ball Z figurines—Xie said he developed an eye for identifying promising characters or designs, called “IP brands,” by mixing personal fandom and online research. That he himself is demographically a member of Generation Z, the driving force behind China’s new “emotional spending” consumption trend, helps him understand what may resonate beyond advertising and go viral.

“Opportunities in the sector in the years to come will be on the single stock level as the population dividend comes to an end,” he said. “I pick companies that have breakthrough products, new business models and innovative sales channels—products that are both visually appealing and fun.”

His top pick, Pop Mart, accounted for 10.5% of the fund’s total assets as of March, the top end of its maximum ownership in a single stock allowed, filings show. Other big bets include Mao Geping Cosmetics Co., up 83% this year, as well as Chongqing Baiya Sanitary Products Co., and Yantai China Pet Foods Co.

Xie’s strategy lies firmly in targeting the Gen Z consumption trend, where purchase decisions are driven by emotional triggers and hobby interest. Despite looming threats from Donald Trump’s proposed tariff hikes, this behavioral change fueled rallies in pockets of China’s stock market, especially after the momentum from artificial intelligence began to fade. 

Shares of the companies at the heart of this trend—including Pop Mart and Laopu Gold Co., known for distinctive gold pendants—have staged wild gains this year. Laopu is up more than 2,000% since its initial public offering in Hong Kong a year ago. 

Xie’s fund owns shares that trade in the mainland as well as in Hong Kong. A gauge for Chinese stocks listed in Hong Kong has risen 20% this year. The mainland’s benchmark, the CSI 300, had edged down 0.3% so far this year.  

The rally has expanded to include sectors like medical aesthetics, pet foods and even vape products. Another potential area for Xie: tapping into the rising popularity of sparkling yellow wine.

“The line between what is considered ‘old’ and ‘new’ consumption is blurring and more companies will join the new consumption pool once they realize that there’s no future for them eking out a survival in their comfort zones,” Xie said. “Even old trees can sprout new shoots.” 

Still, the consumption-driven rally is showing cracks. Pop Mart tumbled after a People’s Daily commentary on June 20 that called for stricter regulation of “blind-box” toys—products in sealed packaging designed to conceal content and induce surprise and greater desire to collect them. Laopu faces greater selling pressure after the lock-up period from its IPO expired Friday. 

Meanwhile, many Gen Z stocks are near or above their average price targets, and in turn, driving analysts to constantly find reasons to bump up their outlook. 

Xie acknowledged that valuations in the sector may be getting ahead of fundamentals, with some stocks already pricing in earnings three to five years ahead. 

Still, he remains overall bullish, particularly on the stocks he’s heavily invested in.

“The gains may look incomprehensible to some people, but it’s actually all rooted in earnings,” he says. “Growth for some is underestimated, while others are just in the early stages of their life cycle.”