From the issuance of China's first quant fund - Everbright Sun Life Quantitative Core on July 20, 2004, up to now, there are already ten quantitative investment funds in the domestic fund market: Everbright Sun Life Core, ICBC Credit Suisse Alpha, Harvest Quantitative Alpha, China Sea Quantitative Strategy, Hua Shang Dynamic Alpha, Changsheng Quantitative Dividend Strategy, Fullgoal CSI 300, Southern Strategy Optimization, Huatai Berui Quantitative Pioneer, and Changxin Quantitative Vanguard.
Quantitative funds transform the fund manager's investment philosophy and stock selection ideas into models or quantifiable terms. On one hand, this avoids the interference of the fund manager's emotions and subjective decision-making; on the other hand, with the help of computerized program models, it can track and discover a large number of investment opportunities that human power cannot reach. Due to the execution of special investment strategies, compared with traditional open-end funds, quantitative funds present different risk-return characteristics and investment operation styles, and their investment performance is widely watched by the market. This report intends to conduct research and analysis on the quantitative funds established domestically.
1. Performance Criticized as Legendary Tales
Quantitative funds have reached a considerable scale overseas, and their performance has also been very outstanding. The Medal Fund managed by James Simons, one of the founders of U.S. quantitative investment, achieved an average annual return rate of 38.5% from 1989 to 2006, which far exceeds Buffett's average annual return rate of 20%, becoming an international legend in quantitative investment and once supporting the rise and temporary popularity of domestic quantitative funds. However, the performance of domestic quantitative funds is far from being as splendid as that.
We focus on examining the historical performance of quantitative funds established before 2010. After excluding index funds - Fullgoal CSI 300, there are six evaluation objects left, namely Everbright Sun Life Core, ICBC Credit Suisse Alpha, Harvest Quantitative Alpha, China Sea Quantitative Strategy, Hua Shang Dynamic Alpha, and Changsheng Quantitative Dividend Strategy. By evaluating the indicators such as the establishment-to-date returns, three-year returns, and one-year returns of these six funds, we find that except for Hua Shang Dynamic Alpha showing better performance, the performances of other funds are generally mediocre, some even at the bottom of their peers, and the risks and volatility are relatively high, such as Everbright Sun Life Core, ICBC Credit Suisse Alpha, and Harvest Quantitative Alpha. The so-called legendary returns in China are just legends.
Table 1: Historical Performance of Quantitative Funds
| Fund Name | Fund Type | Establishment Date | Returns Since Establishment | Risk-Adjusted Returns | Annualized Volatility | Three-Year Returns | One-Year Returns |
|-----------|-----------|-------------------|--------------------------|-----------------------|----------------------|--------------------|------------------|
| Everbright Sun Life Core | Stock-type | 2004-08-27 | 212.09% (9/9) | 0.59% (9/9) | 33.90% (9/9) | -39.92% (97/104) | -2.11% (124/186) |
| ICBC Credit Suisse Alpha | Stock-type | 2005-10-11 | 412.06% (4/22) | 1.36% (7/22) | 31.00% (10/22) | -26.45% (56/104) | -4.36% (144/186) |
| Harvest Quantitative Alpha | Stock-type | 2009-03-20 | 27.51% (123/144) | 0.36% (109/144) | 29.53% (112/144) | ---- | -0.77% (116/186) |
| China Sea Quantitative Strategy | Stock-type | 2009-06-24 | 8.03% (117/160) | 0.49% (119/160) | 24.48% (22/160) | ---- | 3.48% (83/186) |
| Hua Shang Dynamic Alpha | Hybrid-type | 2009-11-24 | 14.30% (7/158) | 1.46% (19/158) | 21.55% (140/158) | ---- | 18.52% (3/159) |
| Changsheng Quantitative Dividend Strategy | Stock-type | 2009-11-25 | 3.88% (72/176) | 0.01% (102/176) | 17.08% (33/176) | ---- | 2.71% (90/186) |
2. Investment Bias Towards Large Caps, Ignoring Market Hotspots
The characteristics of quantitative funds determine that they are not good at grasping market hotspots. The performance of quantitative funds, especially short-term performance, often lags behind those funds that are sensitive to market hotspots and actively adjust their position structures. According to the analysis of the position structures of the above-mentioned six quantitative funds, the majority of quantitative funds mainly invest in industries concentrated with large-cap stocks, such as financial insurance, machinery equipment instruments, metal non-metal, petroleum chemical plastic rubber, etc., and maintain stability in most reporting periods. If Hua Shang Alpha is excluded, this feature will be more obvious. This characteristic of quantitative funds often makes their performance during bull markets significantly better than during bear markets. A special case is Hua Shang Dynamic Alpha. Its position structure is relatively dispersed, and its performance since its establishment has significantly outperformed the average of its peers.
Table 2: Position Structure of Quantitative Funds
| Code | Industry Name | Percentage of Stock Investment Value (%) | 2010Q3 | 2010Q2 | 2010Q1 | 2009Q4 |
|------|---------------|-----------------------------------------|--------|--------|--------|--------|
| A | Agriculture, Forestry, Animal Husbandry, Fishery | 0.97 | 1.09 | 0.31 | 0.28 |
| B | Mining Industry | 7.43 | 4.76 | 4.88 | 5.17 |
| C | Manufacturing Industry | 42.51 | 45.57 | 44.30 | 43.53 |
| C0 | Food, Beverage | 6.05 | 5.06 | 3.71 | 3.85 |
| C1 | Textile, Clothing, Fur | 0.51 | 0.44 | 0.54 | 0.11 |
| C2 | Timber, Furniture | 0.00 | 0.00 | 0.03 | - |
| C3 | Papermaking, Printing | 0.83 | 1.20 | 0.94 | 0.49 |
| C4 | Petroleum, Chemical, Plastic, Rubber | 8.74 | 7.51 | 8.14 | 7.03 |
| C5 | Electronics | 2.53 | 2.83 | 2.12 | 1.31 |
| C6 | Metal, Non-Metal | 6.61 | 9.49 | 11.46 | 12.43 |
| C7 | Machinery, Equipment, Instruments | 10.76 | 11.92 | 11.25 | 13.02 |
| C8 | Medicine, Biologics | 6.12 | 6.81 | 6.06 | 5.24 |
| C99 | Other Manufacturing | 0.36 | 0.30 | 0.10 | 0.03 |
| D | Electricity, Gas, Water Production and Supply Industry | 0.13 | 0.64 | 0.31 | 0.82 |
| E | Construction Industry | 0.62 | 0.40 | 0.57 | 1.04 |
| F | Transportation, Storage Industry | 5.21 | 4.07 | 6.78 | 6.55 |
| G | Information Technology Industry | 3.67 | 3.82 | 3.17 | 1.79 |
| H | Wholesale and Retail Trade | 5.53 | 6.55 | 7.08 | 6.64 |
| I | Finance, Insurance Industry | 23.89 | 26.59 | 27.21 | 30.11 |
| J | Real Estate Industry | 5.16 | 3.26 | 3.24 | 1.76 |
| K | Social Service Industry | 1.89 | 1.50 | 0.67 | 0.44 |
| L | Media and Culture Industry | 0.60 | 0.03 | 0.01 | 0.07 |
| M | Comprehensive Category | 2.40 | 1.73 | 1.47 | 1.81 |
Table 3: Bull and Bear Market Performance of Quantitative Funds
| Period | Name | 06.01.01-07.10.16 Big Bull Market | 07.10.16-08.10.28 Big Bear Market | 08.10.28-09.07.31 Big Rebound | 09.08.01-11.01.12 Wide Fluctuation |
|--------|------|------------------------------------|-------------------------------------|----------------------------------|-------------------------------------|
| Everbright Sun Life Core | 496.21% (10/30) | -69.00% (97/97) | 115.08% (5/134) | -5.90% (114/164) |
| ICBC Credit Suisse Alpha | 561.86% (1/30) | -54.87% (26/97) | 80.87% (87/134) | -5.21% (109/164) |
3. Inevitable Cultural Dissonance, Quantitative Becomes Conceptual
Quantitative investment in China has not achieved the same investment results as in mature markets. The difficulties in its implementation in China include: the domestic capital market is not mature, and the fluctuations are significantly larger, making it difficult to find stable and effective quantitative models; insufficient investment tools make it difficult for quantitative models to fully utilize the characteristics of automatic trading; domestic quantitative funds are not pure, most adopt a combination of qualitative analysis and quantitative analysis strategies, and under the pressure of short-term performance, they cannot well execute quantitative investment strategies, making so-called quantification equivalent to concept.
Quantitative investment in China has not achieved remarkable results. Due to the particularity of China's capital market, quantitative funds exhibit different risk-return characteristics and investment operation styles, manifested as: mediocre performance, some funds' performance at the bottom of their peers, and higher risks and volatilities; mainly investing in industries concentrated with large-cap stocks, and relatively stable position structures; performance during bull markets is significantly better than during bear markets. Investors should clearly recognize this characteristic of quantitative funds when purchasing them. (Quantitative funds fix their investment philosophy and understanding of the market into quantifiable models, while market prices always fluctuate around value, sometimes producing deviations, and returning to value requires a certain amount of time. Therefore, the position structure of quantitative funds is relatively stable, and it is not a fund that can certainly see results in a short period. Investors should clearly recognize this characteristic of quantitative funds when purchasing them.)
Related thematic articles:
http://blog.chinabyte.com/a/2659829.html
http://www.diglog.com/story/technology_mods_665578.html
http://www.facekoo.com/cnbatons/blog/IwTzpZEPMG0_6f.html
http://my.pclady.com.cn/d/2443265.html