When the tide falls, I know who is swimming naked.
Since 2019, the equity market has had a good time for three consecutive years. In order to pursue high returns, both investors and fund managers have constantly tried radical investment strategies. It has been tried repeatedly for three years. What came into being is that style drift funds emerge in endlessly. Fund managers who dare to bet and chase a single track have become famous for a while, and the scale of the fund is also growing.
Since the beginning of this year, the market has ushered in a sharp correction, and radical investment strategies have failed one after another. Fund products with a decline of more than 30% during the year are everywhere. The track fund managers have collectively fallen into the “altar” and “fixed income +” has also become “fixed income -“. Disturbed by various factors outside China, this situation is difficult to change in the short term. Many investors also said that to reduce investment expectations this year, it is difficult to reverse the shock trend of the equity market in the short term.
Under extreme market conditions, the risk will be infinitely amplified, and fund products that can obtain steady excess return and steady absolute return are becoming more and more scarce. How to bring long-term benefits beyond the market to fund investors in a complex market? Quantitative products that abandon emotions and diversify investment have gradually entered the eyes of investors.
Quantitative investment began in the United States for more than 50 years. China’s first public offering quantitative product was established in 2004 and has gone through 18 years from 2022. According to the data, the latest scale of China’s public offering quantitative fund is 227.3 billion yuan, accounting for only 1% of the total scale of public offering funds.
Why is the development of public offering quantitative funds with the advantages of risk control and obtaining steady excess returns slow? What good changes have they experienced? What are the difficulties and pain points? Can we make great progress in the future?
public offering quantitative fund has significant long-term excess return
Quantitative funds can be divided into stock bulls, market neutrality and CTA At present, China’s public offering quantitative products mainly include active quantitative funds, index enhancement funds and quantitative long and short hedge funds. Looking at the performance of the three categories of products, we can see that the overall resistance to decline and the ability to obtain excess returns are significant, and their styles are different, which can meet the investment needs of different groups.
Among them, the index enhancement fund is the product with the most significant excess return in the public offering quantitative fund. According to the data, as of April 21 this year, in the past three years, the CSI 300 and CSI 500 index rose by 3.19% and 3.82% respectively. In such a market environment, some index enhanced funds based on quantitative investment still achieved significant excess returns, such as Furong CSI 300 enhanced a and SDIC UBS CSI 500 quantitative enhanced a, which rose by 93.32% and 55.83% respectively in the past three years.
Lang Chengcheng, general manager of the research department of Furong fund, believes that the “index +” product has the advantages of both active funds and passive funds, providing investors who want to invest in the index with an investment opportunity that can not only reap the beta return of the index, but also obtain excess return.
Looking at the lengthening cycle, the data show that 77% of the index enhanced the net return of fund products, which has outperformed the benchmark of product benchmarking since its establishment. Among them, 11 products, including shenwanlingxin CSI 300 index enhancement a, e-fonda Shanghai Stock Exchange 50 enhancement A and SDIC UBS CSI 500 quantitative enhancement a, have achieved more than one time of the benchmark return (excess return) since their establishment, and only 6 index enhancement funds have lost 10% of the benchmark.
Quantifying the net value of long and short hedge funds is generally stable. As of April 15, six funds, including Fuguo quantitative hedging strategy, Huatai Bairui quantitative hedging strategy, Jingshun Great Wall quantitative hedging strategy, shenwanlingxin quantitative hedging strategy and Everbright sunshine quantitative hedging strategy B, have become popular against the market this year. In terms of lengthening the cycle, there are a total of five fund products that have achieved profits every year in the past seven years (20152021), namely Haifutong alpha hedge a, huitianfu absolute return strategy a, Huatai Bairui quantitative hedge, Huatai Bairui quantitative return and southern absolute return strategy. Since its establishment, 21 quantitative long and short hedging products have achieved positive returns, accounting for up to 80%. From the perspective of annual returns, the highest is no more than 7% and the lowest is no less than – 7%. Judging from the winning rate of absolute return, quantitative long and short hedge funds can be said to be one of the most robust products among the funds investing in the equity market.
Active quantitative fund performance fluctuates greatly, and most fund products can attack and defend. The performance of Rudong Wu Anxin quantitative a, Changsheng quantitative dividend strategy, Puyin AXA quantitative Multi Strategy A, Jiutai Tianyi quantitative value a and Ping An quantitative selection a fell only slightly during the year. At the same time, six active quantitative funds also fell by more than 30%. In the long run, since the establishment of 20 active quantitative funds, the number of active quantitative funds that have more than doubled the benchmark income and lost 10% of the benchmark has reached 15. Since the establishment of more than 20 active quantitative funds, the return has doubled. Among them, Shanghai Investment Morgan alpha has been established for 16 years, with a cumulative increase of 660%. China Merchants quantitative selection C has been established for less than 3 years, with a cumulative return of 82.27%. It can be seen that the performance of some active quantitative funds is no worse than that of active equity funds.
Liu Zhao, deputy director of investment and fund manager of Boshi fund index and quantitative investment department, said that after 2017, the style of the A-share market has changed. The subjective stock selection public offering funds hold shares intensively and perform well, while the quantitative funds used to decentralized shareholding are at a disadvantage in such a period of time. But even during this period, most quantitative funds still achieved positive excess returns compared with the performance benchmark. Since 2021, the track type centralized investment model has disintegrated, and the advantages of the continuous positive excess return of public offering quantitative funds have begun to highlight, which has attracted the attention of investors again.
public funds have stepped up to quantify the investment layout
The development of China’s public offering quantitative fund can be traced back to the launch of Everbright Prudential quantitative stock in 2004. But in the real sense, what is called the first year of China’s quantitative investment is 2010. In April of that year, the subject of China’s first stock index futures contract, Shanghai and Shenzhen 300 stock index futures, was officially listed and traded. This means that China’s capital market can operate both long and short, which has greatly promoted the development of China’s quantitative investment.
In this context, various public funds have made efforts to quantify the investment layout. The layout idea combines the prediction of the development trend of quantitative products by various fund companies, the development path suitable for their own resource endowments and some new explorations. For example, huitianfu fund has the largest scale of quantitative hedging products, and Boshi fund applies quantification in index products, The quantitative products of Western Lide fund and Bodao fund occupy a very important position in the company. Data show that nearly 100 public funds have issued quantitative fund products. In terms of the company’s organizational structure, many public funds have set up quantitative investment departments and recruited many excellent investment and research talents.
Boshi fund follows the idea of multi asset, Multi Strategy and all-weather in the layout of quantitative products. According to Huang Ruiqing, general manager and fund manager of Boshi fund index and quantitative investment department, the quantitative investment department is a highly collaborative and investment research integrated Department, which undertakes the whole process of investment research from research model development to portfolio management, and cooperates with other investment research departments and it and financial technology centers of the company to jointly build the overall investment research framework of the company through internal investment research.
Morgan Stanley Huaxin Fund regards active products as its fist products. “At present, our product line layout is dominated by active products,” said Yu Bin, director of the company’s quantitative investment department, which is related to the investment philosophy of our company and the shareholder Morgan Stanley. We always believe that active management can create long-term value and provide long-term solutions for customers.
At present, the combination of quantification and active investment is still the mainstream method of public funds.
Huang Ruiqing said that Boshi fund has been continuously increasing investment, which is mainly reflected in the field of financial technology and the combination of initiative and quantification. In terms of products, it will also make a comprehensive layout from the perspective of index and quantification to meet various investment objectives and needs of investors from relative return to absolute return.
Lang Chengcheng takes the self managed Furong CSI 300 index enhancement fund as an example. The fund is also “quantitative + active”. In terms of quantification, the macro model and traditional factor scoring method are mainly used to output the judgment of the current economy and industry prosperity through the quantitative model, so as to guide the direction of over allocation and low allocation of the industry. After determining the industry allocation direction, add active research. Lang Cheng’s positioning for active research is to eliminate the “burrs” in the factors. Therefore, he pays more attention to the company’s operation and management and business development, and tries to ensure that the company’s fundamentals match the scoring results of the factors.
scale development encounters bottleneck
however, in terms of product scale, the development of China’s publicly raised quantitative funds still needs to be accelerated. Data show that the latest scale of China’s public offering quantitative funds is 227.3 billion yuan, accounting for only 1% of the total scale of public offering funds
As an emerging investment form that is still exploring and breaking the ice, public offering quantitative products undoubtedly face a variety of challenges. The first is that compared with other public offering products, investors have insufficient understanding. In addition, the most striking point is that they need to compete with private offering quantitative products biased towards high-frequency strategy. In the past two years, the quantitative development of private placement in China has been in full swing, and many private placement companies with a scale of 10 billion have been born. However, there are restrictions on reverse trading and automatic trading of public offering quantitative products, which seems to be a natural constraint.
“These two points are mainly for high-frequency services. High-frequency trading is not the key development direction of public offering quantification.” Liu Zhao said that compared with private placement, the public offering quantitative model emphasizes the long-term logic of the model and the mutual “resonance” between the statistical law and the subjective investment experience.
Liu Zhao introduced that the public funds themselves have a huge subjective research team, have long-term follow-up research on the macro-economy, the dynamics of the industrial chain and the personality characteristics of listed companies, and have a deep understanding of the investment logic. Quantitative teams born out of public offering often attach great importance to the economic significance of quantitative models, which should conform to the investment law and have long-term logical consistency and stability. At present, quantitative private placement in the Chinese market generally starts from quantitative high-frequency, emphasizing the short-term statistical law. Due to the restrictions of laws and regulations, public funds cannot do intra day reverse trading, and they rarely do reverse trading within one or two days. Therefore, there is less research and investment in high-frequency strategy, while some quantitative private placement high-frequency strategies have excellent performance. There is a significant difference between public offering and private placement quantification.
Yin Ruifei, deputy general manager of quantitative investment of SDIC UBS, said that compared with public offering, the quantitative supervision of private placement is also relatively loose, and its biggest advantage lies in its flexibility. First of all, there are more investment varieties, including various commodities, options and even OTC investment varieties. Secondly, investment strategies are more diversified, including quantitative hedging, index enhancement, CTA, intraday trading, etc. In addition, its investment strategy is more flexible. In the face of some short-term investment opportunities, private quantification can quickly switch in to obtain some short-term returns.
can quantitative fund adapt to public offering
according to Zheshang Securities Co.Ltd(601878) estimation, the scale of quantitative funds in the United States has accounted for about 10%. The development prospect of China’s quantitative products is also broad and distant, which is deeply believed by every practitioner. Is there a place for quantitative products for public funds
Liu Zhao believes that the structure of China’s stock market participants dominated by retail investors determines the broad living space of quantitative investment. Quantization has also made good achievements in the field of public offering. For example, according to the statistics of the database, from 2012 to 2016, three of the five funds with the largest increase were quantitative funds.
In Yu Bin’s view, public offering quantification has great potential. Firstly, the quantitative method naturally pursues the compound interest effect, which can meet the needs of asset management in the long-term time dimension; Secondly, with the increasing number of stocks in the market, the difficulty of selecting individual stocks is increasing, and it is difficult to fully tap the investment value of each company. The advantage of quantitative investment is that the strategy can always cover all stocks. China has always been a country with a particularly complete industrial system, rich industrial chain and continuous expansion of upstream and downstream integration, which is reflected in the continuous emergence of growth companies in subdivided industries. The methodology of quantitative investment has more and more advantages in the Chinese market; Finally, the quantitative portfolio is relatively scattered and can accommodate a relatively large scale, which can effectively control the impact of scale change on performance stability.
For investors who use the mainstream broad-based index such as CSI 300 or CSI 500 as a long-term allocation tool, Yin Ruifei believes that the index enhancement fund has the potential to replace the index fund. He said that the historical data can clearly show that in the long run, the enhancement of the index has a significant excess return relative to the index. Although the rate of index enhancement fund may be slightly higher than that of index fund, the long-term excess return can fully cover this part of the cost. Index enhancement fund is certainly a better choice than index fund.
So, how does the soil of public offering breed quantitative funds? How to make this rising star of tomorrow more dazzling? Public fund companies and quantitative teams still need to make continuous exploration and breakthroughs in practice.
Yu Bin believes that being able to do a good job in public offering quantitative products must be the result of mutual promotion and empowerment between excellent teams and excellent companies. Yu Bin said that in the whole asset management industry, the core element is the team, and the team needs to continue to learn and grow in an excellent corporate culture and environment. The public offering industry is a very good platform for growth and learning. For each company, it is necessary to establish a more reasonable and objective evaluation system to weaken the short-term net value fluctuation and ranking of fund products, so as to help excellent personnel precipitate in it.
Liu Zhao also conveyed to reporters some of his thoughts in carrying out quantitative work. In order to further develop public offering quantification, the first important thing is to reserve and cultivate more talents. In the field of quantitative investment, the requirements for the quality of talents are very strict. We need to have knowledge in finance, mathematics, computer and other aspects, and have strong ability to integrate and draw inferences from one instance. Therefore, talent is the biggest competition outside the board in this industry. In order to make a breakthrough in the development of public funds, they also need to compete with the Internet, chips, private quantification and other industries for talents.
On the other hand, if we want to make public offering quantification bigger and better, we must have the determination and ability to adhere to it for a long time. Excellent quantitative products not only look at investment returns, but also consider investment risks. Controlling the tracking error of performance benchmark is basically a necessary workflow for every excellent quantitative team. Small tracking error and low risk determine that the short-term performance of public offering quantitative products cannot be too prominent. Only after a long time, investors can find the benefits by lengthening the performance. Therefore, it is impossible for public funds that only pursue short-term performance to cultivate excellent quantitative teams.
Conversely, the public offering quantitative team should also do a good job in investor education and market training while doing a good job in investment, so that customers can fully understand the advantages and disadvantages of quantitative funds, and guide customers to hold the base in a decentralized and long-term manner and adhere to fixed investment.
observation: to forge ahead, public offering quantification still needs to adhere to the original intention
The management method of quantitative investment can effectively tap opportunities from many aspects such as growth, value, income and irrational trading, and reduce the losses caused by emotional factors. These advantages are significantly conducive to improving the effectiveness of the market and have been verified in mature markets.
For China’s capital market, quantitative investment is an “imported product”. How can it give full play to its advantages in public offering? We must not completely copy the American model, nor allow it to grow like private placement.
First of all, for fund managers, they should be good gatekeepers for investors to enter the market. Through mathematical statistical analysis, quantitative investment selects securities with high probability of return exceeding the benchmark for investment. Everything seems to be based on digital logic, but the model construction, factor selection and data quality assurance are still inseparable from the subjective choice of the fund manager, which also requires the fund manager to undertake the obligation of prudent investment.
Especially in terms of risk constraints, public offering quantitative fund products are stricter than traditional funds. In order to pursue high returns, fund managers should not deviate from their original intention and relax risk constraints by means of centralized shareholding and high-frequency iterative model. You know, once the market style changes, the negative impact of this risk will appear immediately, which is reflected in the net value of the product. This deviates from the origin and original intention of quantitative hedging products. Yin Ruifei, deputy general manager of quantitative investment of SDIC UBS, said in an interview with reporters that pursuing a higher level of return on the basis of ensuring the robustness of excess return is the biggest difference between the index enhancement fund he manages and other funds, which may be the reason why the excess return of the two index enhancement funds he manages outperforms most peer products.
Secondly, public funds are facing the “same competition” with private funds, so they should make up for their shortcomings with their own strengths and give full play to their own advantages. At present, there are certain restrictions on the transaction of public offering quantitative products, and the standardized system also determines that public offering quantitative cannot have sufficient flexibility like private offering quantitative. However, public offering has a deep accumulation in the traditional investment and research field, and the fundamental quantitative direction has full advantages. In terms of trading frequency, we should not pursue high-frequency trading. Although high-frequency trading has a large profit-making effect at present, it is not sustainable in the long run.
Then, there are more than 9000 public fund products in China, and the product homogeneity is very serious. For public fund quantitative products, they should develop in the direction of differentiation and characteristics. Liu Zhao, deputy investment director of Boshi fund index and quantitative investment department, said that in terms of product line layout, we can try in new markets. A considerable number of quantitative private placement have made CTA strategy, namely futures strategy. Public funds also have many attempts in the field of special accounts, but there is a blank in the field of public offering. For example, CTA can also be combined with fixed income to make “CTA fixed income plus”, which will also be an important breakthrough in quantifying investment products.
Finally, encourage the creativity of fund managers. Creativity is the vitality of quantitative fund managers. Yu Bin, director of quantitative investment department of Morgan Stanley Huaxin Fund, believes that quantitative fund managers should not only have strong tool use skills and logical thinking ability, but also have the ability to interpret market information, extensive sociological knowledge background, learning ability, and inner certainty and confidence after deep thinking. “In fact, what we compete in this market is not who is more diligent, because diligence is actually a relatively basic requirement for everyone. The real core is whether we can think deeply and make innovative achievements on the basis of existing data or research,” Yu Bin said.
