In recent years, the continued volatility of the equity market has made investors realize the importance of "bottom assets" in a successful fund portfolio.
Because in the face of different market environments, the bottom position assets will show different characteristics:
- When the market is good, the bottom position can help investors avoid missing opportunities, and at the same time, they can also make profits when the market rebounds;
- When the market is bad, the bottom position can provide investors with enough funds to cover their positions or find better buying opportunities, thereby reducing the overall holding cost.
Of course, this requires a premise, that is, the selection of the bottom asset. What is the "ballast stone" that keeps investors "sleeping"? This is probably a question that investors have asked repeatedly over the past few years.
Personally, I feel that in recent years, the A-share market has been characterized by frequent style switching and fast rotation of hot spots, and it is more difficult to beat the index and obtain stable excess returns. This situation is more advantageous for index enhancement funds with characteristics of "balanced + diversified" and "active + passive" strategies, and is more suitable for the "bottom asset" of the fund portfolio.
And after I watched the 2024 CUAM Index Enhancement Summit, I was even more determined in this idea.
The outbreak of finger increase products is not accidental, and it will be born and raised
I've compiled some data on index enhancement funds myself:
Quantity – At the end of 2023, there were 488 index-enhancing funds in the whole market. At the end of 2020, the number was 202, more than doubling in three years;
Scale - By the end of 2023, the total scale of the market-wide index enhancement fund will be 192.447 billion yuan. At the end of 2020, this figure was 113.826 billion yuan, an increase of nearly 70% in three years.
(Data source: wind; as of 2023.12.29; fund shares are calculated separately)
(1) What is the truth behind the double outbreak of quantity + scale?
Why did an exponential enhancement strategy, traditionally seen as a relatively niche, suddenly become popular?
On this issue, in this summit forum, Bruce Lee, assistant director of China Universal Index and Quantitative Investment Department, expressed his own thoughts. Bruce Lee believes that there are three reasons behind the double explosion in the number and scale of index increase products:
- Customer demand is getting closer and closer to this type of product;
- With the development of the mainland market, the infrastructure for the operation of the index increase strategy is constantly improving and complete.
- The rapid development of product managers in the market and the contention of hundreds of schools of thought have provided the market with a variety of index strategies and research methods.
Indeed, in my opinion, the reason why the number and scale of the index increase products have grown rapidly in recent years has a lot to do with the changes in the market environment. In the past two years, the rotation of the A-share sector has been relatively frequent, and the market volatility has increased, and the final result is that the difficulty of investment replication has increased significantly, and the difficulty of obtaining excess returns has also increased accordingly. The index enhancement strategy has naturally attracted more and more attention from the market due to its advantages of more stable operation and management and more predictable excess returns.
(2) Refers to the increase in products, and it is necessary to be able to raise
At present, both institutional investors and individual investors in the market seem to have reached a consensus that in a volatile market, index products can bring us sustainable returns.
However, this also makes me wonder, that is, in the face of such a large number of index products, how to maintain vitality and vitality? Because prosperity must decline, things must be reversed, and with the passage of time, such products may create less and less alpha.
Regarding my question, Xu Yizun, manager of CUAM CSI 300, CSI 500 and CSI 800 Index Enhanced Fund, gave me a reassurance.
He believes that as market efficiency continues to improve, it is also more difficult to obtain index-enhanced excess returns. Under such circumstances, CUAM's index growth team maintains the vitality of quantitative investment from three perspectives:
- First, from the perspective of factor investment, although factor attenuation is an objective phenomenon, with the development of artificial intelligence technology, the breadth of data that can be collected can still be greatly expanded and optimized;
- Second, from the perspective of data science, by further covering more alternative data, establishing a highly standardized and systematic process, shortening the process from information acquisition to generating a transaction portfolio list, and making full use of AI and other technical achievements to improve the breadth, speed and depth of data analysis;
- Third, from the perspective of system engineering, from the establishment of a better system quantitative model to the transformation of it into the excess return of the investment portfolio, there are many links involved in this process, and what we need to do is to reduce the loss in the middle of each link as much as possible, and realize the stability of excess return and the replicability of investment results through a systematic and regular system.
In addition, in the face of possible alpha decay, Xu Yizun also said that their team has two ways to deal with it:
- increased risk exposure, but in such an approach there is significant uncertainty;
- Lowering the expectation of excess returns, doing a closer job in tracking, sticking closer to the benchmark, reducing the loss in investment through refined operations, and maintaining excess returns at a certain level through the iteration of the alpha model, we actually adopt the second approach.
(3) When AI meets quantitative investment, there is a big spark
In the first half of last year, the concept of AI was very popular, and it gradually affected all walks of life. Just now, Xu Yizun also mentioned that from the perspective of data science, it is necessary to make full use of AI technology to improve the breadth, speed and depth of data analysis. So, what kind of sparks can be created by combining AI and quantitative investment?
In this summit forum, Wang Xingxing, manager of CUAM CSI 1000 and CNI 2000 Index Enhancement Fund, just gave me an answer.
In Wang Xingxing's view, AI has affected many industries in the past year, and quantitative investment is one of the most affected, because quantitative investment is one of the few data-driven investment methods in the market.
- The biggest impact of AI on quantitative investing is the discovery of market misalignment pricing opportunities. Because the essence of quantitative investing is actually to find opportunities for misaligned pricing in the market. Before AI was widely used, misplaced pricing opportunities were discovered by manual mining by fund managers and researchers. AI technology has changed all this, and now we can directly use algorithms to find the opportunities that have been limited or missed by human thinking in the past, and catch the "fish that slipped through the net" that was difficult to catch in the fish pond in the past
Turning passive into active, Hui Tianfu's "wonderful pen flowers"
While index enhancement is a good investment, this strategy has a "high-tech" nature, so choosing the right manager is key. This summit forum has given me a deeper understanding of CUAM quantitative investment team.
(1) A team "armed" with more than 100,000 lines of code
I was the first to know that CUAM Fund was in the active field, and was known as a "stock selection expert" in the industry. In the field of index enhancement, China Universal has shouted the slogan of "being an active selector in the index investment industry", and is committed to turning passive into active through quantitative investment, and grafting the ability of active investment to passive investment.
Therefore, in this summit forum, in addition to listening to the speeches of their team members, I also collected information about this team.
CUAM's quantitative investment team has long been well-known in the eyes of industry and institutional investors. At a brokerage metalworking forum many years ago, Wu Zhenxiang said the idea of assisting investment decision-making by collecting and processing public opinion data, so since 2017, China Universal has recruited domestic graduates majoring in artificial intelligence, with the purpose of providing intellectual support for team research.
At present, there are dozens of people in the team of China Universal Index, including traditional quantitative education background in statistics and finance, as well as talents in "special fields" such as computer, AI, physics, etc., most of the team members are recruited by fresh graduates to train themselves, covering various fields such as index enhancement, special account investment, passive index, quantitative research, trading, and risk control, and we have worked together for more than 10 years.
It is worth mentioning that this team has a particularly good characteristic, that is, it benefits and recognizes the company's medium- and long-term appraisal system.
Because in the view of their team, this long-term assessment system can keep the investment and research actions of the whole team from deformation, and can also avoid losing the essence and original intention of pursuing long-term sustainable alpha returns in order to win short-term effective factors.
Over the past 10 years of investment practice, CUAM's quantitative investment team has accumulated more than 100,000 lines of submitted code, more than 3,000 self-developed factors, more than 20 risk screening factors, and more than 10 self-developed optimizers.
Unlike most investment teams that use a quantitative perspective to select stocks, China Universal Quantitative Investment no longer relies on the number of factor pools, but on long-term accumulation and regularization of investment research to improve the efficiency of factor screening, which can be called a "wonderful pen" in the industry.
(2) Sound management from the perspective of rules
The biggest feature of the index enhancement fund is to continuously create sustainable alpha through quantitative strategy stock selection, and what CUAM quantitative investment team needs to do is not to follow the trend and not bet on short-term factors, respect quantitative data, and adhere to the investment bottom line of "index enhancement".
As Wu Zhenxiang, the leader of the China Universal Index Team, emphasized in this summit forum, compared with other products, the greatest value of index enhancement products is "index" and "enhancement". thereinto
- "Index" means that we should always remember the performance benchmark of investment, and pay attention to controlling the deviation and tracking error between the product and the benchmark;
- "Enhanced" means that we should follow the idea of active management to carry out investment management, give full play to our subjective initiative, and expose some sustainable factors we have discovered in quantitative research to the portfolio to achieve sustainable investment performance with excess returns. ”
Through these two points, I seem to understand why everyone is becoming more and more interested in index increase funds now.
Because the market has been volatile in recent years, it is becoming more and more difficult for investors to find long-term sustainable and stable alpha. For CUAM quantitative investment team, if the risk management is done well, while limiting tracking error, focusing on medium and long-term low-frequency factors, and limiting style deviation, there is an opportunity to obtain stable and sustainable alpha returns in the medium and long term.
Anything is easier said than done, but it is hard to do. However, in this summit forum, Zhang Xiaolin, investment manager of China Universal Quantitative Account, taught me a lesson!
Zhang Xiaolin told me that the key word for CUAM's quantitative investment team to maintain the stable and continuous operation of quantitative products is "regularization". There are two aspects to this regularization:
- The first is the regularization of quantitative investment research, and the quantitative team of China Universal has independently built a set of quantitative investment research system;
- The second is the regularization of product management, which puts the investor's risk-return needs in front and converts them into a model parameter, which can directly output a portfolio weight by inputting the parameters into the quantitative model, making the product risk relatively predictable and improving the customer's investment experience.
In Zhang Xiaolin's view, the restriction of regularization essentially restricts the deviation from the market style or relative benchmark, and the restriction deviation is to liberate the productivity of the team to a large extent, and the time can be spent on more factor research and strategy iteration, in order to increase the long-term stable excess return in the overall product operation.
(3) The product matrix is diversified and the performance is outstanding
A good investment research team and a good investment method need to be set off by a good product, and on the other hand, a good index increase product must be supported by a strong investment research team, and the two complement each other.
In the past few years, CUAM has successively launched a series of broad-based index enhanced funds, covering CSI 300, CSI 500, CSI 800, CSI 1000, CNI 2000 and so on......
In other words, whether you are optimistic about large-cap blue-chip or small- and mid-cap, you can find the corresponding index enhancement fund in CUAM, which is very diversified.
Moreover, with the team's unique investment and research philosophy, the performance of these products managed by CUAM's quantitative investment team is also remarkable. For example, as of 1 January 2024, CUAM CSI 300 Index Enhanced Excess Return Ranked No. 1 in its category over the past year, and CSI 500 Index Enhanced Excess Return ranked third in its category in the past two years (Note 1).
Is the index product the "investment answer" at the bottom of the market?
After reading the interpretation of professionals, let me talk about my personal views on this year's index increase products.
For a long time, the capital market has been like a "barometer" of the economy, especially the broad-based index, whose trend and characteristics are actually closely related to the economic development of the mainland.
At present, the valuation of mainstream broad-based indices has been in the bottom area, especially the valuation of the CSI 300 has reached a historical low, the latest valuation is only 10.52 times, which is at the level of 12.55% since the establishment of the index, and long-term key indicators such as the cost performance of stocks and bonds have also released obvious signals (data source: WIND, as of January 15, 2024).
Source: wind, as of 2024.01.15
Moreover, I have read a lot of research reports from brokerages, and everyone is optimistic about the mainland's macro economy in 2024, believing that the policy of stabilizing growth may be stronger than last year, the domestic economy will recover moderately, and corporate profits will rise.
Then I have reason to believe that the medium and long-term allocation value of the broad-based index is relatively high, and it is even expected to usher in the Davis double click of valuation and earnings in the future, and the index enhancement strategy seems to be really suitable for the current "bottom area" layout with a clear benchmark and predictable investment results.
In addition, I would like to tell you about the characteristics of my personal increase fund, which have three:
(1) Some stocks in the A-share market still have pricing deviations, and index products are better at discovering and capturing short-term pricing deviations;
(2) The index increase product has a rate advantage, which can help investors save management fees and other costs while pursuing high returns;
(3) Although the competition in the field of index growth is fierce, everyone is paying more and more attention to their own capabilities, and continue to improve and update their strategies in order to adapt to the market.
More and more people think that it is now the bottom area and can buy the bottom. So, is the index increase fund the answer? Is it qualified to be the "bottom asset" of the fund portfolio? These questions are left to time to verify~~