1031: Yesterday, today and tomorrow of domestic quantitative investment

Recently, a popular word is called quantitative trading. Let's talk about quantitative trading today

As of the end of 2020, there are 13,465 quantitative/hedge strategy funds (including FOF), with a total scale of 700 billion yuan, accounting for 23%. Among the newly issued hedge funds, the AI strategy adoption rate has been 23%. In Europe and the United States, a competitive environment in which 95% of deals are made of institutions, how much effort does the top overseas institutions need to make (investment in software and hardware) to maintain a first-mover advantage or stand firm.

First, the quantitative industry yesterday

The private equity quantitative industry began to develop in 2010 and has a full ten-year history. On April 16, 2010, China's first stock index futures CSI 300 stock index futures (IF) were listed, providing an ideal hedging tool for quantitative investment. So at this time, many of the first generation of revolutionaries (a group of talents who had worked in overseas quantitative hedge funds) returned to China to start their own quantitative companies.

In the first stage, the small market value stocks represented by the ChiNext board continued to rise more than the mainstream stock indexes, and most of the stock market neutral strategies adopted the practice of holding a package of small market value stocks and hedging with IF futures. In addition, IF futures have been in a premium state for most of this time, so that the equity market neutral strategy can obtain the benefits of IF futures price convergence.

From the current point of view, the neutral strategy of the stock market at this stage has the problem of excessive exposure of small-cap stock styles, but due to stable returns, this type of strategy has taken the lead in achieving rapid scale growth, and the number of neutral products in the stock market has exploded in 2014.

At that time, investors' requirements for excess were not high, about 10% of the excess products, and the performance was excellent. Thanks to the rising water environment at that time, superimposed on some arbitrage strategies, quantitative hedging can be very stable to about 15%.

The good times of the first phase didn't come too late, but the duration was really short, and the feast basically ended in 2015.

After the sharp decline in A-shares in 2015, the number of stock index futures was restricted, and the margin was increased, and since then, the stock index futures have changed from premium to premium, and the high annualized discount has led to a significant increase in hedging costs. The reduction in excess earnings has led to a downturn in the traditional low-frequency quantification strategy.

That is to say, the main reason for the end of the feast is that the state of the quantitative hedging tools has changed, only 10% of the excess is not so enough, and the first batch of quantitative managers have been greatly hit (the traditional low-frequency quantification has been impacted).

In fact, before 2015, some mainstream quantitative private equity strategies were more like U.S. mutual fund strategies. After 2016, domestic quantification is the standard American hedge fund strategy.

Second, the present of the quantitative industry

Although the restrictions on stock index futures have gradually been relaxed, IC contracts are still in a state of perennial discount. At present, the neutral products of the stock market of quantitative private placement mostly use IC futures as a hedging tool, and the income has been eroded for a long time.

But on the other hand, the launch of the CSI 500 stock index futures (IC) also solves the structural problems of the CSI 300 itself, making the quantitative strategy face less market risk and style risk, and can better tap the "real" Alpha. Note: After 2019, the further expansion of the two financing targets has once again enriched the types and scale of margins, and the short-selling mechanism of the A-share market continues to improve.

The second round of development of the quantitative industry began to sprout from 2016. More and more new faces have come to the stage, from the older generation of "revolutionaries" 60 years later, to a group of post-80s and post-90s who have also begun to serve as the heads of quantitative institutions.

The mainstream equity strategy of quantitative private equity has shifted from low-medium frequency to medium and high frequency, and the sophistication and complexity of the strategy have been significantly improved. The medium and high frequency strategy mainly captures the pricing deviation of the short-term through the price factor, and then achieves stable excess returns.

Thanks to the dramatic development of computer computing power and AI technology, factor mining and model iteration efficiency have become even higher. Recently, with the continuous expansion of the quantitative strategy of stocks, quantitative private equity is also paying attention to the strategy of accommodating larger-scale funds, and fundamental quantitative and alternative data have gradually been paid attention to. At the same time, quantitative private equity is also exploring other directions, and various futures, options and other derivative varieties have also been launched, driving the development of product types such as CTA, option strategy and quantitative multi-strategy.

Since 2020, the number of tens of billions of quantitative private placements has continued to increase. According to the statistics of the Asset Management Association, the quantitative hedging products of private securities investment funds at the end of 2020. As of the end of 2020, there were 13,465 quantitative/hedge strategy funds (including FOFs), with a total scale of 699.987 billion yuan, accounting for 26.2% and 18.9% of the total number and total size of self-issued private securities investment funds, respectively, an increase of 26.9% over 2019. 2% and 66.5%. In 2020, the new filing scale of quantitative funds was 31.869 billion yuan, which was a substantial increase of 365%.

At the same time, the quantitative industry head effect is obvious. For quantitative private placements with a scale of more than 10 billion, the index of its various products is calculated, and the annual yield and Sharpe ratio of the index are counted, and the annualized yield of various products of quantitative private placement of more than 10 billion yuan is better than the overall performance of quantitative private placement.

In terms of investment strategy, investors have gradually increased their acceptance of stock bulls and index-enhanced products due to the long-term discount on stock index futures, which has eroded the returns of neutral products in the stock market. The list of index enhancement products from the stock long products has increased significantly in the last two years, and there are now nearly 1,000 of them. Managed futures products are another major product type in addition to equity products, with the current number approaching 3300.

Third, quantify the future of the industry

Compared with overseas quantitative institutions, the management scale of domestic quantitative institutions is still small. Two years ago, the world's top five quantitative hedge funds were all managed at more than $60 billion. The expansion of future strategic capacity comes from two aspects of motivation: First, the multi-level market system, the enrichment and improvement of various derivative instruments. The development space of derivatives in the domestic market leaves opportunities for the accumulation and layout of quantitative managers.

The second is the manager's own accumulation, using data, strategies, trading means, etc., to continuously enrich the sources of excess income/absolute returns. The market environment is a common constraint faced by every manager, but in this context, the development and innovation of strategies requires them to show their own talents. In the long run, teams, data, management mechanisms, etc. will gradually develop into a moat for excellent quantitative managers.

From the perspective of the market pattern since 2019, the above characteristics have appeared, and the boundaries of quantitative investment are constantly expanding. Although the main management size of the market is still index enhancement, market neutrality, CTA and other strategies. However, at the same time, the strategic system of option strategy, stock long-short strategy, fund portfolio investment and other strategic systems continue to mature, and gradually managers with strategic systems, historical performance and investment experience have gradually emerged.

How fast is the quantitative industry growing right now? For example, we all know that hedge funds using artificial intelligence are gradually entering the field of investors and bringing long-term excellent performance. According to Preqin, the application of AI strategies in hedge funds (AI strategy adoption rate in newly issued hedge funds) has adopted AI strategies in 2019, which is more than twice that of 2016.

It is conceivable that those top overseas institutions, in a competitive environment where 95% of transactions are made of institutions, how much effort (investment in software and hardware) needs to be made to maintain a first-mover advantage or stand firm. In the future, from the perspective of team recruitment, finance, IT, physics or other disciplines will need to continue to recruit talents, continue to evolve and develop quantitative strategies.

Even if the labor cost and hardware cost of investment research are high, and the return after this capital investment is not completely predictable, it is entirely possible that it is an expense of water drifting. If you don't invest, although you can leave a short-term profit, there is no future from the perspective of investment research.

Finally, we would like to say that the future has come. To quote Mr. Fang Ming: China's quantification is the blue ocean. For everyone, the personal effort is Alpha, the industry development is Beta, quantification is a very good industry, this is an industry where Beta is developing very fast. However, the past decade in the industry has not been smooth, but perhaps it is already a very happy era relative to the next decade.