Rate Cut + "Reanchoring" Fixed Income Products' Performance Benchmarks Face Adjustment

On March 20, China Post Wealth Management announced that starting April 2, the performance benchmark of the China Post Wealth · Hongyun One-Year Fixed-Open 12 RMB Wealth Management Product will be lowered from 2.2% (annualized) to 2.0% (annualized).

Recently, many wealth management companies have announced adjustments to the performance benchmarks of some of their products.

In addition to lowering the benchmark, companies such as China Post Wealth Management, Everbright Wealth Management, and Hengfeng Wealth Management are shifting from traditional fixed values or ranges to an “index anchor” tied to indices or market interest rates.

Industry experts say, “The ‘index anchor’ allows the performance benchmark to fluctuate dynamically with market interest rates, providing a more accurate reflection of the underlying asset returns, avoiding the ‘anchoring failure’ that fixed benchmarks can experience during periods of rapid decline in underlying asset yields, and aligning with the spirit of new financial disclosure regulations.”

Maximum reduction exceeds 100 basis points

Since the beginning of this year, several wealth management firms including Agricultural Bank of China Wealth Management, China Post Wealth Management, Bank of Communications Wealth Management, and China Merchants Bank Wealth Management have announced reductions in the performance benchmarks of some of their products, covering cash management, pure fixed income, “fixed income +”, and other categories.

For example, Agricultural Bank of China Wealth Management stated that due to the decline in static yields of bond assets, the central yield level has changed compared to previous periods. Based on current market conditions, starting from April 6 (inclusive), the benchmark for the “Agricultural Bank Craftsman · Quarterly Open” RMB wealth management product will be adjusted from 2.25%–2.55% (annualized) to 1.90%–2.20% (annualized).

According to statistics, the benchmark reductions for these products mostly range from 10 to 50 basis points, with some exceeding 100 basis points. The most significant decreases are seen in higher-yielding mixed and “fixed income +” products. After adjustment, some mixed products’ benchmarks have fallen below 2%.

For example, the “Agricultural Bank Tongxin · Agile” 30-day RMB wealth management product, a mixed asset product mainly investing in money market instruments, bonds, and other fixed income assets for basic returns, while also allocating to equities, preferred stocks, and securities investment funds for enhanced yields. Currently, its benchmark is 2.45%–3.55% (annualized), but from April 1, it will be adjusted to 1.80%–2.40% (annualized).

“Index anchor” becomes a new trend

In addition to lowering benchmarks, companies like China Post Wealth Management, Everbright Wealth Management, and Hengfeng Wealth Management are also changing the pricing method of many products from fixed values or ranges to indices such as the ChinaBond Index, deposit rates, and Loan Prime Rate (LPR).

For example, starting March 20, the performance benchmark for the China Post Wealth · Hongyuan Short-term RMB Wealth Management Product No. 1 (Value Advantage), with various share classes, will be adjusted from 2.5%–4.8% (annualized) to the “Shanghai and Shenzhen 300 Index yield × 15.00% + the 1-year fixed deposit rate announced by the People’s Bank of China × 85.00%.”

China Post Wealth Management explained that, due to the product’s longer establishment period and significant changes in the current market environment since issuance, the expected asset yields have declined considerably—10-year government bonds have fallen to around 1.8%, and the stock market has rebounded to a relatively higher level. Therefore, the benchmark has been adjusted based on current market conditions.

The “Banking and Insurance Asset Management Product Information Disclosure Measures” effective from September 1 stipulate that when disclosing performance benchmarks, product managers should maintain consistency and generally should not adjust benchmarks. If major changes in investment strategy or scope necessitate adjustments, managers must follow strict internal approval procedures, promptly disclose the reasons and details of the adjustment, and include the history of benchmark adjustments in periodic reports and product disclosures.

Industry experts say, “The ‘index anchor’ allows the performance benchmark to fluctuate with the underlying asset yields, providing a more realistic reflection of asset returns and avoiding the ‘anchoring failure’ that fixed benchmarks can experience during rapid yield declines.”