Zhao Fei, graduated from Beijing Normal University, majoring in probability theory and mathematical statistics, with a master’s degree. He joined Zhongrong Fund Management Co., Ltd. in November 2012 and now holds the position of executive general manager of index investment department. He served as the fund manager of Zhongrong CSI coal index graded securities investment fund, Zhongrong Zhixuan hedging strategy, regular open and flexible configuration hybrid sponsored securities investment fund and Zhongrong Zhixuan dividend stock securities investment fund for 3 months
. People are afraid and greedy. It is often not as easy to practice “greed when others are afraid” as imagined. Therefore, some people say that investment is anti human
quantization algorithm solves this problem
in the opinion of Zhao Fei, CO general manager of the quantitative investment department of Zhongrong fund, the quantitative model is a simulation of the thinking mode of human brain and quantifies the investment logic. However, as a machine, the quantitative model will not be restrained by emotion and can effectively avoid irrational decision-making
from self operated securities companies to public funds, Zhao Fei, who joined the industry in 2008, coincided with the breeding and germination of the quantitative industry. Having experienced many “firsts” in China’s quantitative industry, Zhao Fei’s career path is inseparable from the development of China’s quantitative industry, which has accumulated profound experience for him. After 14 years in the industry, while managing quantitative products, Zhao Fei also has several index products to provide diversified investment tools for holders to layout the capital market
looking for a balanced “hexagon player”
Choosing stocks is like choosing players. Some active equity fund managers may prefer offensive players, while others pay attention to players’ defensive skills. Zhao Fei, a public offering quantitative player, investigated from many aspects through the model to find a “hexagonal player” with strong comprehensive ability.
Zhao Fei introduced that he and his team currently adopt the multi factor analysis framework commonly used in the field of public offering quantitative investment. The quantitative model measures the target from multiple dimensions, and finally forms a decentralized and balanced position.
When screening stocks, first of all, conduct risk screening on stocks to eliminate stocks that do not meet the needs, such as equity pledge ratio and goodwill impairment. Next, eight fundamental factors are extracted according to financial data, market data and expected data to form a multi factor stock selection model to measure the quality of enterprises.
“These fundamental factors are based on our past experience and have a good explanation for the excess return of stocks.” Zhao Fei said that there are more than 120 factors in its factor library. On this basis, the long-term stable factors were screened out by using the data over the past decade. Finally, about 30 fundamental factors in five categories were proved to be logically supported and long-term effective, “including growth value, profitability, company quality, etc., which are all factors we use and track for a long time.”
Combined with the fundamental research on the company’s history and current situation, Zhao Fei and the team also introduced expected data to judge the company’s future trend. This includes not only the profit expectations of the seller’s analysts for individual stocks, but also the forecast data provided by internal industry researchers. By embedding the expected profit, expected profit growth and expected valuation into the stock selection model, predict the future development of the stock, and select the one with higher expected return for investment.
In Zhao Fei’s view, dispersion and balance are quantitative labels. Taking zhongrongzhi Dividend Stocks as an example, the top ten heavy position stocks account for only 41% of the overall position, and the number one heavy position stocks account for less than 6%. The product position portfolio is scattered and there are few heavy positions. “In the multi factor quantitative model, both from the perspective of the weight of industries and individual stocks reflect the characteristics of decentralization. This strategy finally reflects the statistical characteristics of factors, that is, the average return.”
In order to cope with the changeable market, Zhao Fei and her team will, on the premise of ensuring the dispersion, screen out the factors to be configured in the next stage by investigating the factor performance in the past period, and dynamically configure the phased effective factors. “In the past three months, our model identification found that the value and dividend factors performed well, so we will increase the weight reconfiguration on these factors, but only adjust the boundary, which belongs to smooth change, still follow the decentralization standard and will not be over allocated.” Zhao Fei stressed that even if the factors that perform well for a period of time are found, they will not expose the extreme style in a single factor. In addition, factors with poor short-term effectiveness will also be given a certain weight. “We take 3-6 months as the dimension to examine the effectiveness of factors. Instead of grasping short-term fluctuations, we insist on making long-term effective factors.”
In order to further control the fluctuation of the portfolio, the model will adjust positions and exchange shares every month, rank and score individual stocks by using the selected factors, and adjust positions according to the comprehensive expected return of individual stocks. Zhao Fei explained: “after refreshing the model every month, the model will select different stock combinations. Take a simple indicator as an example, the valuation of the stock in the position may rise after the rise. If it does not have an advantage in the comprehensive score, the expected income score will decrease, so it will be sold when adjusting the position.”
the first batch of “crab eaters”
In 2010, with the official listing of the first stock index futures, short selling in the Chinese market became a reality, opening the curtain of quantitative investment Guotai Junan Securities Co.Ltd(601211) prospectively laid out the corresponding investment strategies and investment platforms in advance, quickly launched China’s first stock index futures arbitrage product, and became the first institutional investor to arbitrage in stock index futures. At that time, Zhao Fei worked as the investment manager of Guotai Junan Securities Co.Ltd(601211) securities and derivatives investment headquarters.
A year later, he took over as the investment manager of the special account of the structural product investment department of Harvest Fund to manage the special account of quantitative hedging strategy. In 2013, based on this special account product, harvest issued an absolute return strategy public offering product, which is China’s first public offering quantitative product.
Having experienced many “firsts”, Zhao Feicheng became the first batch of people to “eat crabs”. His career path has grown all the way with China quantification, and accumulated profound knowledge and experience of the industry.
In 2012, Zhao Fei joined Zhongrong fund and was responsible for index research. During this period, he once again witnessed an important turning point in China’s quantitative field. In 2016, the market switched from small cap stocks to large cap value stocks. White horse stocks with high roe in food, beverage and household appliance industries ushered in a sharp rise with stable profitability; Small market value enterprises in the middle and lower reaches of the industry generally lose.
The sudden change of style caught most quantitative strategies unprepared at that time. The effectiveness of market biased factors such as small market value factor and liquidity factor, which have been widely used before, has decreased, and the collective quantitative strategy has suffered a sharp retreat. It was in this year that the whole market quantitative investment mode changed, and the price volume factor was no longer popular. Public offering quantification began to combine the ideas and methods of fundamentals and active bulls to invest in the way of fundamentals quantification.
At that time, the new quantitative hedge account products issued by Zhongrong fund faced the same problem, and the over allocation of specific factors further dragged down the performance. Since then, the quantitative investment of Zhongrong has been branded with a decentralized and balanced style. It adheres to the quantification of fundamentals without over allocation and heavy positions.
“Equilibrium” is one of the key words of public offering quantification. In Zhao Fei’s view, the advantage of quantification is that it can earn the average income of the industry through statistical models and decentralized investment. Through a large number of back tests and historical data, batch investment in a basket of stocks aims to beat the market benchmark and outperform the average return. “From the perspective of long-term performance, considering the time dimension of ten years, the quantitative model should be able to rank in the top 30% of the whole market.” Zhao Fei said.
coal industry or meet long-term configuration opportunities
“Quantitative model is actually simulating the thinking process of human brain, but it is more like assembly line processing. It can quantify and model the investment logic. It has strict discipline in actual investment.” Zhao Fei admitted that people sometimes prefer “gambling”, and the algorithm can avoid this.
Zhao Fei pointed out that compared with active equity funds, quantitative products with efficient data processing can process a variety of data in multiple dimensions at the same time, which is more and more efficient than the amount of information processed by the human brain, and can effectively avoid artificial irrational decision-making. The quantitative pursuit is the winning rate. The average income of the industry is expected to be realized through mathematics, so that the total average income is relatively more stable. The advantage of active equity funds is that they can get the latest information at any time, and the fund managers are really optimistic about heavy positions. This may usually bring high excess returns to the portfolio, but in turn may bring more risks to a certain extent.
Zhao Fei stressed that the advantages and disadvantages of quantification are actually one and two sides. The difference between fundamental players and quantitative players lies in the different ways of processing data. Active rights and interests players process information through the human brain. The quantitative model is more like big data. By introducing a variety of data, we can deeply learn historical data and imitate the human brain for processing and processing. In this process, various data are factored, and the investment model is derived and strictly implemented. “Similar to the quantitative model, researchers investigate listed companies and mine data, but experienced fundamental investors have their own analysis process. When studying the individual stock industry, they will compare with historical experience, carry out in-depth processing and draw relatively better conclusions.”
In addition to quantitative products, Zhao Fei also manages a number of index funds. Among them, the Zhongrong CSI coal index has performed well in the recent volatile market, with a cumulative increase of 18.06% this year, far exceeding the average level of similar industries. Zhao Fei said that under the premise of supply and demand mismatch, the coal industry may usher in long-term investment opportunities.
“The coal sector has shown very strong fundamentals recently.” Zhao Fei said that from the performance of the coal index, it rose by more than 48% last year. After falling in the fourth quarter, it has strengthened again recently. The conflict between Russia and Ukraine has pushed up the international coal price in the short term, and the power coal even rose to nearly $400 a ton at one time. “At present, industry experts see the strength of the coal industry. In 2025, investors can pay attention to or consider long-term allocation through fixed investment”.
Zhao Fei pointed out that on the supply side, China’s new capital expenditure on coal has decreased year by year since 2010. Since the epidemic in 2020, coal supply has been in a state of shortage. Globally, in the context of carbon neutralization, Europe and the United States are facing the long-term task of carbon neutralization. Global coal expenditure is decreasing and there is no new production capacity. The supply is limited. With the global economic recovery, the demand for coal increases. In the process of new energy development, there will be periodic frequency instability. Under the mismatch of supply and demand, coal has become a strategic reserve material.
“Although after last year’s regulation, China’s coal production capacity has been released.” “However, the coal price has just reached the position of relative balance between supply and demand, and has risen again this year. This reflects the tight supply of the fundamentals of the coal sector. We predict that the annual coal demand will increase by 2% by 2025, which will form a strong support for the coal price,” Zhao said
