If fund managers also test MBTI, Zhang Xiaofeng may be a typical I (introvert) and T (thinking) person. Low-key, rational, and a "hidden sweeping monk" are many people's impression of Zhang Xiaofeng. In our latest interview with Zhang Xiaofeng, he mentioned the phrase "dare not take it easy" several times. After joining the Industrial Securities Global Fund after graduating from the Department of Mathematics of Shanghai Jiao Tong University, Zhang Xiaofeng has accumulated 10 years of research experience in different fields, and since 2021, he has co-managed the Xingquan CSI 800 Index Enhanced Fund with veteran Shen Qing, and has achieved more than 20% excess returns in about 3 years.
From mathematics and research to managing an index-enhanced fund, to being the proposed fund manager of the world's first dividend strategy fund of China Industrial Securities, what are the characteristics of his investment philosophy? How will he manage the Industrial Securities Global Dividend Mixed Fund, which is about to be issued? This article excerpts Mr. Zhang Xiaofeng's latest investment sharing and market views to share with you.
Zhang Xiaofeng
China Industrial Securities Global Dividend Mixed Fund is proposed to be the fund manager
Fund Manager of Xingquan CSI 800 Index Enhanced Fund (Co-managed)
Essence view
● The essence of investment is the realization of DCF (discounted cash flow model), a group of birds in the forest is not as good as a bird in hand, through regular dividends to transfer the cash flow distributed by listed companies to holders, to create a relatively stable cash flow for holders, more in line with the essence of dividend investment.
● Staying disciplined in investing will help us stay vigilant, help reduce the risk of making mistakes, stay calm when the market is frenetic, and stay focused when the market is pessimistic. The stock market can sometimes have cyclical "bubbles", often reduced to the well-known three-word formula, and the popularity of these formulas means that these assets may already be crowded.
● The Fund will adopt a quantitative + active management approach. Pure data-driven quantitative investment may easily lead to correlation data mining, while ignoring the underlying business logic, and some factors that are more in line with business logic may have a longer life cycle. Purely bottom-up active investing can lead to excessive style paranoia, requiring quantitative means to control style exposure.
● After the development of the capital market in recent years, under the guidance of the latest policies, the shareholder return awareness and dividend system of listed companies are constantly strengthened, and dividend investment is expected to be well accumulated in the institutional framework. With the increase in the willingness of listed companies to pay dividends, we believe that the optional space for dividend sector assets will become more and more abundant.
● This product is suitable for investors who agree with the dividend strategy, pursue a certain degree of certainty, and have a consistent risk appetite. In the current market, we dare not easily make suggestions to investors, and only hope that investors will carefully choose products according to their own risk appetite and investment philosophy. For future holders, we will take every trust seriously, and don't do anything for good.
Investment Philosophy
Revere the boundaries of cognition and return investment to its essence
You graduated with a bachelor's degree and a master's degree in mathematics, how does this affect your investment? What do you think about investing?
Xiaofeng Zhang: I studied mathematics at Shanghai Jiao Tong University for both undergraduate and graduate studies, and I chose to invest mainly out of my own interests, and the main influence on my investment was to pay more attention to objective data and make decisions based on data and facts. At the same time, we also recognize that human cognitive ability is imperfect, and we need to have a calm and observant attitude towards the market at all times, and only when the winning rate, odds, and expected returns reach a reasonable level can we participate in investment opportunities.
Do you have any investors you admire? Are there any recommended books?
Zhang Xiaofeng: I don't dare to comment on this issue lightly. Personally, I think that in the current environment of excessive information overflow, it may be more necessary for excellent investors to strengthen the ability to screen and filter information and prevent the output of some overly paranoid views.
I don't dare to recommend books easily, if you want, you can share a non-investment book "Critique of Pure Reason". The value of this book to the general reader is that we should critique our own cognitive methodology before doing anything, and know what is cognizable and what is out of the scope of cognition.
You emphasize the boundaries of cognitive ability, and you also mentioned in your previous sharing of Xingquan CSI 800 Index Enhanced Fund that "a little more quantitative than active, a little more active than quantitative", is this investment philosophy also influenced by the above ideas?
Zhang Xiaofeng: We will adopt a combination of "quantitative and active" investment management. On the one hand, pure data-driven quantitative investing, while it may be effective, tends to lead to correlation data mining and ignore the underlying business logic. Based on personal experience, some factors that are more in line with business logic may have a longer life cycle, such as quality, dividend yield, etc. On the other hand, it is not easy to evaluate active investment, but in recent years, active investment is often based on bottom-up stock selection, although it is reasonable, but it is easy to lead to excessive paranoia about style, and it may be helpful to control the style exposure through quantification.
After joining China Industrial Securities Global Fund in 2011, you have participated in research work in various departments for 10 years, what impact has this research experience had on your investment?
Zhang Xiaofeng: In the FOF Investment and Financial Engineering Department, he mainly studied low-risk instrumental products such as grade A, and did some work in system development in the Fixed Income Department, and also formed a cognition of low-risk investment. The individual's investment philosophy is also biased towards deep value. The essence of the above experience is to use DCF (discounted cash flow model) for asset pricing, which is highly compatible with my research and investment in dividend strategy.
Why is DCF asset pricing more compatible with dividend investment? How do you understand the investment philosophy of a dividend strategy?
Zhang Xiaofeng: We believe that the essence of investment is the realization of DCF, a group of birds in the forest is not as good as a bird in hand, through regular dividends to transfer the cash flow distributed by listed companies to holders, and strive to create a relatively stable cash flow for holders, which is more in line with the essence of dividend investment. Therefore, the dividend investment style is an investment style that pursues certainty. The classic DCF pricing model regards the stock price as the discounted value of future dividend cash flows, while the DCF formula will have short-term terms and perpetual terms, and the perpetual term is essentially the sum of an equal series, the value is extremely sensitive to the denominator, and the denominator is almost all from subjective assumptions, so the reliability of the perpetual term is not high. Dividend investment, on the other hand, focuses more on the more predictable short-term terms in the DCF formula, and downplays the perpetual terms, which helps to obtain greater certainty.
About the marketplace
Dividend investment is expected to accumulate favorable institutional benefits
Dividend assets represented by the CSI Dividend Index have performed strongly in the past year and since the beginning of 2024, but they have also encountered certain adjustments recently, and the market's views have also diverged. Where do you think the dividends come from? Is there any hope for a continuation in the future?
Zhang Xiaofeng: We believe that in the current environment of "asset shortage", dividend assets still have a certain degree of sustainability. The current yield on 30-year Treasury bonds is about 2.6%, while the mainstream dividend index still has a dividend yield of 4-5%, and we believe that the underlying yield of the dividend index is significantly better than that of long-term Treasury bonds, and it should be able to beat long-term Treasury bonds if held for a long time. There is no concept of excess return in dividend assets per se, but rather a BETA. Therefore, we can only assert that the dividend style is expected to continue in the future from the perspective that it is expected to receive a solid dividend, but we cannot say that this style will perform stronger or weaker than other styles in the future.
Some people believe that the current situation of the decline in the risk-free interest rate may make dividend assets more cost-effective. What do you think of this view? What challenges or opportunities do you see in the future interest rate environment for dividend investing?
Xiaofeng Zhang: We basically agree with this view, the relative value of any asset comes from comparison. With the implementation of breaking the rigid exchange, the previous high-yield assets are gradually exposed to risk, and the yield of relatively low-risk assets such as fixed deposits and treasury bonds has declined, which will help improve the investment cost performance of dividend assets. We dare not assert the future interest rate environment, but we can only say that under the current downward trend of medium- and long-term risk-free interest rates, the relative attractiveness of dividend yields on equity assets represented by broad-based indices has emerged.
How do you see the current valuation and dividend yield levels of dividend assets? What are the implications for future dividend investment opportunities?
Zhang Xiaofeng: We should look at this issue from the perspective of comparing the prices of large types of assets. At present, the dividend yield of the CSI 300 Index, which represents equity assets, is close to 2.9%, and the static dividend yield of dividend assets is about 5.2%, while the yield of 10-year treasury bonds is 2.4%, and the yield of 30-year treasury bonds is less than 2.6%. Source: WIND, as of 5/10/2024. The views are time-sensitive and may change in the future, so the fund should be cautious in its investment. The CSI Dividend Index is only used as an example of the dividend theme strategy, the Fund has not yet been established, the performance benchmark index does not represent the future performance of the Fund, and the historical performance does not represent the future, so the fund investment should be cautious.
Since February 2024, the China Securities Regulatory Commission (CSRC) has issued a series of policies, including "further regulating the cash dividend behavior of listed companies, encouraging and guiding listed companies to pay dividends, and improving the normalized dividend mechanism".
Zhang Xiaofeng: We believe that these policies will help enhance the long-term investment value of dividend assets, provide investors with more predictable dividend cash flows, help enhance the awareness of shareholder returns of listed companies, and streamline corporate governance. At the same time, the above-mentioned policy also shows a red card for hollowed-out high-proportion dividends to prevent major shareholders from infringing on the rights and interests of other shareholders of listed companies. We also believe that after the development of the capital market in recent years, under the guidance of the latest policies, the shareholder return awareness and dividend system of listed companies are constantly strengthened, and dividend investment is expected to be well accumulated in the institutional framework. With the increase in the willingness of listed companies to pay dividends, we believe that the optional space for dividend sector assets will become more and more abundant.
New base thinking
Do disciplined dividend investment, quantitative + active scientific layout
For the new product of China Industrial Securities Global Dividend Mixed Fund, could you briefly introduce your dividend investment philosophy?
Zhang Xiaofeng: For this fund, we hope to do "disciplined dividend investment", and in general, we will conduct negative screening in some mainstream dividend indexes to eliminate the value traps and leave dividend style assets with long-term value. The reason why "discipline" is emphasized is that human beings have limited cognitive ability to understand things, and are easily affected by emotions, and are prone to extreme optimism and pessimism in the financial market, so they need to respect the market and strive to make fewer mistakes.
By adopting a disciplined dividend investment strategy, you can help reduce the risk of making mistakes, on the one hand, stay calm when the market is feverish, and do not blindly follow the mainstream investment formula. There are sometimes periodic "bubbles" in the stock market, and they are often simplified to the well-known three-character formula, which when they become popular, often means that these tracks are crowded. By emphasizing the minimum requirement for dividend yield, it helps to avoid following the trend and trading crowded assets, and sticking to the most essential DCF pricing. Another aspect of "discipline" is to be able to maintain concentration when the market is pessimistic, based on the judgment of the more certain parts of the DCF, improve the confidence of holdings, and try to avoid market bias when certain high-dividend assets are "wrongly killed" by the market.
At the portfolio level, what kind of investment strategy will you adopt in this dividend strategy fund?
Zhang Xiaofeng: We hope to combine quantitative and proactive methods to manage with a "core + satellite" strategy.
The core strategy refers to the mainstream Smart Beta bonus enhancement style, and strives to do better in details. On the one hand, we refer to the constituent stocks of mainstream dividend indices and eliminate value traps as much as possible, and since the current premium rate of AH shares is also at a historically high level, we will also appropriately replace high-dividend assets with both A-shares and Hong Kong stocks according to the premium rate, and strive to obtain high-quality assets with higher dividend yields.
The satellite segment mainly actively participates in various low-risk arbitrage opportunities in the market (including but not limited to tender offers, share swap mergers, convertible bond arbitrage, high-discount fixed increases, etc.), and strives to obtain certain thickening. The weighting allocation is dynamically allocated depending on the existence of arbitrage opportunities, and as a product positioned as a dividend style, the Fund will maintain sufficient weighting of the core strategy. According to the price-performance ratio of stocks and bonds, the premium rate of convertible bonds and other indicators, the tactical allocation of stocks, bonds, convertible bonds and other assets should be appropriately carried out.
Can you add a little bit more about your "quantitative + active" investment approach in this fund?
Zhang Xiaofeng: The more important focus of the dividend strategy should be to avoid value traps, so we will first conduct a preliminary screening of dividend assets through a number of common stock selection factors such as quality, momentum, dividend yield, etc., and then further eliminate some value trap assets that cannot be found by quantitative indicators based on fundamental research. It is necessary to be vigilant against phenomena such as hollowed-out dividends, high dividends that "fall out", and cyclical high dividends; Attention should also be paid to the sustainability of highly leveraged and high-dividend companies; In addition, for some assets with a good ESG (environmental, social and governance) record and relatively stable fundamentals, but with slightly lower dividend yields, they will also be allocated through active judgment.
In addition to avoiding value traps through the above methods, at the individual stock level, how else would you choose the target of dividend investment?
Zhang Xiaofeng: Considering that dividend assets are more of an underlying allocation asset, we will not do too much trading. In addition, the analysis of dividend stocks needs to carefully analyze the life cycle of the industry and the company, and ensure that the DCF under reasonably conservative parameters can cover the current stock price as much as possible, and the "duration" of the dividend cash flow should not be too long, so as to reduce the uncertainty of the model assumptions. It is worth noting that although most of the stocks in the dividend sector are in a mature life cycle in the conventional sense, we do not exclude growth stocks from dividend investment, such as buying and holding certain assets with good quality and strong sense of shareholder return at low cost in the early stage, and we will also pay attention to companies with good quality, certain growth potential and high dividend payout ratio.
There are many types of dividend strategy products in the market, what do you think are the characteristics and differences of this fund?
Zhang Xiaofeng: The Industrial Securities Global Dividend Mixed Fund is an active equity dividend strategy product, mainly for investors who agree with the value dividend style, hoping to achieve a certain enhancement compared with the traditional dividend index through a combination of active and quantitative methods. Compared with dividend ETFs on the market, this product is more flexible, and we hope to make full use of this flexibility to correct some unreasonable asset allocation in traditional dividend strategies.
In addition, the product has set a dividend agreement clause in the income distribution clause in the contract, and on the premise of meeting the relevant fund dividend conditions, the fund will distribute income no less than once a year, and the proportion of income distribution each time shall not be less than 80% of the distributable profit. This dividend mechanism means that there may be less dividends when assets are undervalued, and more active dividends when assets are overvalued, which contains a simple timing mechanism, which may be more conducive to investors' long-term experience. Note: For the terms of profit distribution and dividends, please refer to the full fund contract and prospectus of the Industrial Securities Global Dividend Mixed Fund. Note: The dividend clause is not used as a profit guarantee and performance commitment, and the Fund does not necessarily pay dividends every year.
What kind of investors do you think this product is suitable for? What advice or would you like to say to investors in the current market?
Zhang Xiaofeng: We believe that this product is suitable for investors who agree with the dividend strategy, pursue a certain degree of certainty, and have a consistent risk appetite. In the current market, we dare not easily make suggestions to investors, and only hope that investors will carefully choose products according to their own risk appetite and investment philosophy. For the future owners of this product, we will take every trust seriously, and do not do anything small.
Industrial Securities Global Dividend Mixed Fund
021247（A）021248（C）
May 20-June 14 Hongyun issued
Through the "China Industrial Securities Global "Science +" column, the subscription account of China Industrial Securities Global Fund brings you the latest market views of the global fund managers of China Industrial Securities and presents their most core investment strategies and investment styles one by one.
The views are from the fund manager's interviews, which are dated March 30 and April 10, and are time-sensitive and may change in the future. The proposed fund manager's strategy is not necessarily the same as the strategy of the future fund operation. Views are personal and do not necessarily represent the position of the company and are for informational purposes only. Zhang Xiaofeng's research experience: Since April 2011, he has worked as a researcher at China Industrial Securities Global Fund. He is currently the fund manager of Xingquan CSI 800 6-Month Holding Index Enhanced Fund (co-managed with Shenqing since May 24, 2021). The performance data has been reviewed with the fund custodian. Fund manager Zhang Xiaofeng manages all products: Xingquan CSI 800 Index Enhanced A2021/5/24-2024/3/31Cumulative growth and performance benchmark: (-6.04%/-27.39%); 2021/2/9-2021/12/31（2.64%/-6.08%），2022（-10.71%/-19.55%），2023（1.17%/-9.89%）。 Xingquan CSI 800 Index Enhanced C2021/5/24-2023/12/31 Cumulative Growth and Performance Benchmark: (-7.11%/-27.39%); 2021/2/9-2021/12/31（2.28%/ -6.08%），2022（-11.07%/-19.55%），2023（0.77%/-9.89%）。 The time period of "excess income of condominium products exceeding 20% in about 3 years" refers to 2021/5/24-2024/3/31, and the specific performance is as above. Risk Warning: The Fund is a hybrid fund, and the expected return and expected risk are higher than those of money market funds and bond funds, and lower than those of equity funds. The fund manager has rated it R3. The performance benchmark of the Fund is: CSI Dividend Index Yield ×60% + CSI Hong Kong Stock Connect High Dividend Investment Index Yield ×20% + China Bond Composite (Full Price) Index Yield ×20%. The proportion of the Fund's equity assets is 60%-95% of the Fund's assets (of which the proportion of investment in the underlying stocks of the Hong Kong Stock Connect accounts for 0-50% of the equity assets); Invest in dividends-themed equities as defined by the Fund as accounting for not less than 80% of the Fund's non-cash assets; At the end of each trading day, after deducting the trading margin required for stock index futures, treasury bond futures and stock option contracts, the Fund shall maintain cash or the total proportion of government bond investment with a maturity date of less than one year not less than 5% of the Fund's net asset value, of which cash does not include settlement reserves, deposit margins, subscription receivables, etc. For the terms of profit distribution and dividends, please refer to the full fund contract and prospectus of the Industrial Securities Global Dividend Mixed Fund. Note: The dividend clause is not used as a profit guarantee and performance commitment, and the Fund does not necessarily pay dividends every year. Investors should carefully read the fund contract, prospectus and other legal documents of the fund to understand the risk-return characteristics of the fund, and judge whether the fund is suitable for the investor's risk tolerance according to their own investment objectives, investment period, investment experience, asset status, etc., independently judge the investment value of the fund and make investment decisions. Investment is at your own risk. The mainland fund has been in operation for a relatively short period of time and does not reflect all stages of the development of the stock market. The performance of other funds managed by the fund manager or other portfolios previously managed by the proposed fund manager does not constitute a guarantee of the performance of the fund. Past performance is not indicative of the future, and there is a risk of fluctuation in the fund's returns. Funds should be invested with caution and should be chosen carefully.