Not long ago, I updated my annual update "List of Non-Group Funds", and many readers asked about CUAM CSI 500 Enhanced A (001050).
In the 2023 edition, I included a fund called "CUAM Growth Multi-Factor Quantitative Stocks". However, the fund has since transformed into the current CUAM CSI 500 Index with enhanced product positioning. That's why I didn't include it in the 2024 version, but that doesn't mean I'm not optimistic about it.
On the contrary, after the market volatility in the first quarter of 2024, my evaluation of this 500 index increase is even higher. Let's talk about it here.
Beta 遇事不决，买 500
In 2024, an important decision for A-share investment may be whether the large- and small-cap styles will rotate.
From 2019 to 2020, the large-cap style was like a rainbow, and from 2021 to 2024, small-cap stocks were the laggard, but the "avalanche" of small and micro caps in the first quarter of 2024 once again made investors worry about style rotation.
In such a turbulent period, seeking stability may be the first priority of fund investment.
There are many ways to think about stability.
One is the one that the author recently introduced, referring to the market value distribution of CSI A-shares, CSI 300, CSI 500, CSI 1000 and even smaller small micro-caps are all allocated, one is quite a lot, on par with A-shares on the Beta, and more rely on base selection to earn excess. Of course, such an approach may require the allocation of at least four or five funds.
The other is the "middle line" that the author has talked about before, and the style problem is indecided, ask 500.
Yes, the author looks back at the historical performance of several broad-based indices and finds an interesting phenomenon: when there is a serious seesaw in the style, the CSI 500 is often the "mainstay of the midstream", which can obtain a relatively balanced income performance. At least since the release of the CSI 1000 Index in 2015, the CSI 500 has been the one that has risen a lot and fallen not much in the annual return PK of the CSI 300, CSI 500 and CSI 1000 indexes.
Past changes in the index are not indicative of its future performance
It is precisely this kind of robustness that, judging from the annualized returns of different periods so far, the CSI 500, an index that has hardly won the first place of the year a few times, has a good long-term return, and even in terms of performance so far in 2019 and 2021, the full return of the 500 ranks first among the three broad bases.
Past changes in the index are not indicative of its future performance
In the cycle of style rotation, the CSI 500 is a broad-based index, which is not very sharp, but it will not let you lag behind in the market capitalization factor, and it can bring a kind of long-term potential under the "mean" - every year is not fast, but in the long run, you find that the performance is beautiful.
Exponentially enhanced alpha magic
In the past year, the attention of quantitative index enhancement products has been very high, and many index enhancement products have indeed made more excesses.
But let's be clear, where does this excess come from?
According to the contract of the public index enhancement fund, 80% of the investment is limited to the constituent stocks that track the index, with 20% freedom.
The author recently looked at the alpha performance of many index increases, and also made some attributions based on the full position data at the end of 2023. In the case of CSI 500 Index Enhanced Fund, there are three sources of recent overload:
❶ Add large-cap blue chips, such as 300 value
So far in 2024, broad-based indices have been heavily diverged. As you can see from the chart below, the CSI 300 has considerable advantages among several wide bases. This means that if you make good use of 20% of the freedom and allocate more CSI 300 constituents, especially the better-performing 300 value constituents, then you can earn excess CSI 300 beta.
Past performance of an index is not indicative of its future performance
❷ Strictly adhere to 500 but increase the dividend
Another way of thinking is to still focus on the CSI 500 constituent stocks, not to deviate upward or downward, but to increase the allocation of dividend stocks in the CSI 500 constituent stocks.
At the end of 2023, among the CSI 500 constituent stocks, the number of constituent stocks that also belong to the CSI dividend is not high, at about 6%. However, some 500 index increase funds have increased the proportion of CSI dividend constituent stocks to 17%, so that the fund will shift to the 500 value style, and naturally can also enjoy the excess return of the dividend style so far this year.
❸ Sink small micro disks
Starting from the CSI 500, sinking to the CSI 1000 or even the CSI 2000.
In the past few years, small and micro caps have had significant beta-level overcaps relative to large-cap stocks, and the inefficient pricing of small and micro caps is also the area where the growth strategy is most likely to make overcaps.
Exponential Enhancement: Luck or Strength?
But the sinking of market value also requires strength. The volatility in the first quarter of 2024 and the sharp decline in the beta of small and micro caps are a relatively big test for index products.
It is this test that allows us to see the difference between CUAM CSI 500 Index Increase.
As I mentioned earlier, after the market volatility in the first quarter of 2024, my evaluation of this 500 index increase is even higher.
The following table is a penetrating analysis based on the full position of CUAM CSI 500 Index Increase at the end of 2023, and we can see that 82.39% of its holdings are CSI 500 constituent stocks, and then CSI 1000 and CSI 2000 constituent stocks have 2.32% and 8.8% respectively, and there are only a negligible CSI 300 constituent stocks, indicating that at that point in time, CUAM CSI 500 Index increased positions were operated by market value sinking.
Although the turnover rate of quantitative fund holdings is high, and the position at a point in time at the end of 2023 cannot represent long-term performance, it also has certain reference value.
From the perspective of short-term excess returns, CUAM CSI 500 enhancement has not suffered a "substantial" blow due to the adjustment of micro-cap stocks.
The chart below shows the trend comparison of CUAM CSI 500 Index Growth relative to CSI 500 Total Return Index in 2018 year-to-date and the excess return curve. It can be seen that this wave of excess drawdown in February this year was not obvious, and it quickly recovered its losses and hit a new high of excess.
Past performance is not indicative of future performance
This shows that when the micro-cap stocks adjusted, CUAM CSI 500 Index Growth relied on the alpha ability to "smooth" out the index fluctuations, and quickly reacted to market changes, adjusted its strategy, and quickly caught up with the market rhythm.
So, 500 finger increase, you ask which one do I like?
My choice is definitely something like the CUAM CSI 500 Index Increase.
Go through the wind and rain and look forward to the rainbow
"If you don't experience wind and rain, how can you see a rainbow". There is no doubt that the strengthening of the CUAM CSI 500 Index has experienced the ups and downs of the beginning of the year.
In my opinion, the sustainable excess is perhaps more important than the absolute number of the excess.
Comparing the year-on-year performance of CUAM CSI 500 Index Enhancement and CSI 500 Index since 2018, we can see that this excess performance is outstanding, even in a year like 2021, when the style is in a big rotation, it has also ensured that the excess is positive.
A quantitative fund, an index enhancement fund, to truly make the holders trust, considerable excess is of course one thing, and the other is the communication with the holders.
It has become the consensus of more and more active fund managers to make good use of the "small composition" of the fund's regular report to make it recognized and reassured by holders. However, among quantitative funds, there are not many that are worth reading. The CUAM CSI 500 Index is enhanced, which is one of the more readable.
Taking the just-released quarterly report as an example, a paragraph is used to review the performance of various factors, and also reveals the recent changes in quantitative factor investment:
In terms of quantitative stock selection factors, during the reporting period, valuation, fundamentals and expectations factors such as value, dividends, profitability, earnings quality, growth and institutional consensus performed better, while contrarian market factors and short-term trading factors performed poorly. Overall, long-term factors are better than short-term factors, fundamental factors are better than market factors, and traditional factors are better than factors constructed using new technologies such as AI.
Then the fund manager used a paragraph of text to review the excess volatility in the first quarter, and at the same time made a certain "spoiler" for the future model iteration direction: improve the ability to respond to changes in market style and improve the stability of excess returns.
During the reporting period, the CSI 500 Index fluctuated as a whole, and the Fund followed the investment principles of quantitative index enhanced funds, maintained a relatively balanced factor allocation, and combined with the risk control model to control the deviation of the portfolio from the benchmark in style, industry and individual stocks. From the end of January to the beginning of February, under the influence of liquidity and market sentiment, some styles and stock selection factors retreated sharply, resulting in a drawdown in the excess return of the portfolio relative to the benchmark. In the future, we will continue to iteratively update the quantitative stock selection model, improve our ability to respond to changes in market style, and improve the stability of excess returns. The CSI 500 Index is a representative broad-based index of the A-share market, with a distinct mid-cap balanced style, leading companies in many segments, and the current valuation is still at a historically low level, with high investment value.
Can the goal of improving the stability of excess returns be said and achieved? Of course, this needs to be confirmed by future performance, but judging from the recent performance of the fund, I am still quite confident.