(Bloomberg) -- A Chinese fund manager trounced almost every rival last year, counting on a machine-learning program that never stops running to analyze the country’s convertible-bond market.

Jia Teng’s Zheshang Fengli Strengthen Bond Fund returned 31% in 2021 using an artificial intelligence system that crunches dozens of variables. Developed in-house, the program screens the securities for technical indicators and sell signals like clause-trigger levels. The strategy helped the fund grow its assets under management twenty times over to 4.6 billion yuan ($725 million) in the nine months through September 2021, the latest available data. 

“The AI system tells us our investing strategy will still work even if the fund’s asset increase further,” said the 33-year-old Jia Teng, a money manager at Zheshang Fund Management Co. in Shanghai. 

Convertible bonds have history of speculative activity in China, intensified by the way the market is structured. Unlike the majority of the country’s stocks, there are no daily price limits on convertible bonds and the securities can be bought and sold on the same day. While the market was in the past dominated by large banks, investors’ insatiable appetite for new securities has in recent years encouraged riskier issuers to tap demand.

Some 113 convertible bonds were sold in China last year, taking the value of outstanding notes to a record 702 billion yuan. The niche market -- which is about 1% the value of the country’s equities -- was a bright spot in China last year, rising 18%. That compares to a 5.2% drop in the CSI 300 Index of stocks and a 12% gain in the ChiNext.

In 2019, the country’s securities regulator acted to curb activity in the convertible bond market after an investor stampede into new issues stoked concern it was overheating. Officials had relented by the end of that year, allowing new issuance to pick up. In 2020, trading in the notes turned so chaotic that regulators released 37 new directives in a day just to calm the market down.

To Jia Teng, the market’s expansion has created new investment opportunities in the industrial-products and consumer sectors. The risk is that too many funds will chase a market that’s generating better returns than onshore stocks or credit.

“The convertible bond market is slightly crowded,” said Jia Teng. “Investors should be wary of potential adjustments caused by excessively crowded transactions.”

©2022 Bloomberg L.P.