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Defensive Strategy Analysis

Against the backdrop of China’s economic downturn in 2025 (GDP growth of 4.5-5%, tight liquidity), institutional investors have generally adopted defensive strategies. Through the Information Fork research method, we can deeply analyze the logic and forms of these strategies and derive valuable investment insights from them.

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Overview of Institutional Defensive Strategies

In the economic downturn cycle, institutional investors’ defensive strategies mainly include the following aspects:

• Cash Allocation: Increase cash holding ratio to maintain liquidity
• Low-Valued Targets: Allocate low-valued, high-dividend blue-chip stocks
• Defensive Industries: Increase allocation in defensive industries such as consumer, pharmaceutical, and utilities
• Hedging Tools: Use gold ETFs, bond ETFs and other hedging tools
• Strict Risk Control: Raise risk control standards and reduce leverage ratios

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Information Fork 1: Cash Allocation and Gold ETF Hedging

Through cross-validation of multiple information sources, we found that institutional investors generally increased cash allocation in 2025 and used gold ETFs as important hedging tools.

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Data Verification

Market Data:

• The average cash holding ratio of public funds reached 50-60%, a new high in the past 5 years
• Gold ETF holdings increased by 25% year-on-year, with net capital inflows exceeding 30 billion yuan
• The yield of 10-year government bonds continued to decline, reflecting rising market risk aversion

Grok Search Results: Using the keywords “institutional cash allocation gold ETF 2025” to search on X platform, we obtained the following main viewpoints:

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Practical Case Analysis

Case 1: Cash Allocation Strategy of Large Public Funds A large public fund increased its cash holding ratio from 42% to 58% in the first quarter of 2025, while increasing its allocation ratio to gold ETFs from 5% to 12%. This strategy helped the fund outperform similar products in the case of market decline. Case 2: Defensive Allocation of Insurance Funds As long-term institutional investors, insurance funds paid more attention to the safety and stability of assets in 2025. Data from a large insurance company shows that the proportion of cash and cash equivalents in its investment portfolio reached 45%, the proportion of government bonds and high-rated credit bonds reached 30%, and the proportion of stock allocation decreased to less than 20%, most of which were low-valued, high-dividend blue-chip stocks.

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Information Fork 2: P/E Valuation and High-Level Position Reduction Strategy

In the 2025 market environment, institutional investors paid special attention to valuation levels, especially the P/E (price-to-earnings ratio) indicator, and adjusted their investment portfolios accordingly.

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P/E Valuation Analysis

According to market data, the overall P/E level of the A-share market in 2025 was about 18.8 times, at a medium to low level in history. However, there were large valuation differences in different industries:

• The average P/E of the technology industry was 32 times, at a historically high level
• The average P/E of the consumer industry was 25 times, at a medium level in history
• The average P/E of the financial industry was 8 times, at a historically low level
• The average P/E of the pharmaceutical industry was 30 times, at a medium level in history

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Institutional Strategy of Reducing Holdings in High-Priced Targets

By analyzing changes in institutional positions and market data, we found that institutional investors adopted a strategy of “reducing holdings at high levels and laying out at low levels” in 2025:

1. Reducing Holdings in High-Valued Technology Stocks: Institutional investors generally reduced their holdings of technology stocks with P/E above 40 times, especially those companies with performance growth lower than expected
2. Laying out Low-Valued Financial Stocks: Increased allocation to bank, insurance and other financial stocks with P/E below 10 times
3. Selective Allocation to Consumer and Pharmaceutical Industries: Retained high-quality targets in the consumer and pharmaceutical industries with relatively reasonable P/E (20-25 times) and stable performance growth

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Grok Search Verification

Using the keywords “institutional P/E valuation stock selection 2025” to search on X platform, we obtained the following main viewpoints:

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Time Characteristics of Institutional Defensive Strategies

Through analysis of historical data, we found that institutional investors’ defensive strategies have certain characteristics in time:

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Quarterly Characteristics

• First Quarter: Institutions usually adjust their investment portfolios according to annual economic outlook and policy environment, increasing defensive allocation
• Second Quarter: If economic data in the first quarter is lower than expected, institutions will further strengthen defensive strategies
• Third Quarter: Based on first-half economic data and second-half policy expectations, institutions may fine-tune defensive strategies
• Fourth Quarter: Considering year-end capital settlement and next-year layout, institutions may appropriately reduce cash ratio

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Policy Response Characteristics

Institutional investors usually respond quickly to policy changes:

• When policies tighten, institutions will quickly increase cash allocation and hedging tools
• When policy easing signals appear, institutions will gradually reduce cash ratio and increase risk asset allocation
• For important meetings (such as the Central Economic Work Conference) and policy documents, institutions usually organize special research teams for in-depth analysis

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Market Volatility Characteristics

Institutional investors’ defensive strategies are particularly obvious when the market fluctuates sharply:

• When the market experiences a sharp decline, institutions usually remain calm and will not blindly sell
• When market panic spreads, institutions may appropriately increase cash allocation and wait for better buying opportunities
• When the market experiences an oversold rebound, institutions usually reduce holdings of some high-valuation targets at higher prices

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How to Learn from Institutional Defensive Strategies

For individual investors, we can derive the following insights from institutional investors’ defensive strategies:

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1. Control Positions and Maintain Liquidity

• It is recommended to control the cash ratio at 30-40%, and adjust it appropriately according to personal risk tolerance
• Maintain sufficient liquidity to enter the market in a timely manner when opportunities arise
• Avoid excessive leverage and reduce the volatility of investment portfolios

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2. Pay Attention to Valuation and Allocate Reasonably

• Avoid blindly chasing high prices and pay attention to valuation indicators such as P/E and P/B
• Appropriately increase the allocation ratio of low-valued, high-dividend sectors
• Diversify investments to avoid excessive concentration in a single industry or target

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3. Use Hedging Tools to Reduce Risks

• Consider allocating a certain proportion of gold ETFs, bond ETFs and other hedging tools
• Learn to use derivatives such as options for risk management
• Adjust the allocation ratio of hedging tools in a timely manner according to changes in the market environment

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4. Think Contrarian and Seize Opportunities

• Stay calm during market panic and pay attention to high-quality targets that have been wrongly sold off
• Remain cautious when market sentiment is extremely optimistic and avoid chasing high prices
• Adhere to the concept of long-term investment and avoid frequent short-term trading

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Experimental Task: Institutional Defensive Strategy Observation

Now, let’s conduct an observation experiment on institutional defensive strategies to help you better understand and apply these strategies.