Pengyang Fund Quantitative Investment Department: Smart factor strategy, a high-quality indexed investment method

Theme: Beijing's public fund high-quality development series activities, new era, new funds, and new value
At present, my country's public fund industry is entering a critical stage of deepening reform, improving quality and efficiency. As an important participant in the capital market and the main force in residents 'wealth management, while achieving scale growth, public funds are also facing important issues such as improving investment capabilities, optimizing customer experience, and enhancing investor trust. Promoting high-quality development is not only an industry consensus, but also an inevitable mission to serve national strategies and respond to people's expectations.
Recently, under the guidance of the Beijing Securities Regulatory Bureau, the Beijing Securities Industry Association joined hands with more than 40 public fund managers, fund sales agencies, fund evaluation agencies and many mainstream media in Beijing to jointly launch the "Beijing Public Fund High-Quality Development Series". The theme of this event is "New Era, New Funds, and New Value". It aims to strengthen investor education and protection, promote the transformation and upgrading of the public fund industry, and improve services through more than a month of multi-level and multi-form publicity and interaction. Real economic capabilities create a new business card for high-quality financial development in Beijing.
Today, as my country's economy shifts from a stage of rapid growth to a stage of high-quality development, the capital market is also undergoing profound changes in investment concepts. Traditional scale-oriented index investment is evolving into more sophisticated and systematic strategic investment. Among them, the Smart Beta strategy is based on its unique factor investment system. Due to the characteristics of transparent rules and long-term stability and excess, it has attracted the attention of more and more investors, and has become the most potential development direction in the field of passive index investment. one.
The essence of Smart Beta is a regular factor investment strategy. It systematically introduces empirically tested effective factors into portfolio construction to screen or optimize weighting constituent stocks, aiming to obtain returns that exceed the benchmark and reduce risks. In recent years, with the continuous deepening of academic research, a large number of scholars have discovered different market anomalies and effective factors, providing guidance for the industry's investment portfolio construction. In terms of general categories, the most widely used factors include value, quality, low volatility, momentum, dividends, size, etc.
Smart Beta combines the advantages of active and passive investment.On the one hand, Smart Beta rules are clear and transparent, highly replicable, and have lower management costs than active investment; on the other hand, Smart Beta chooses to expose on specific factors and adopts a non-market value weighting method to achieve better risk diversification and higher potential excess returns. To sum up, Smart Beta has the following three advantages: increasing revenue, reducing risk and increasing transparency.
Smart Beta products have clear factor exposures, which can obtain risk premiums from multiple perspectives such as value, quality and momentum, and obtain precise and transparent revenue thickening. Taking the 300 Quality Low Wave and the 500 Quality Growth Index as examples, the two indices respectively increase their exposure to factors such as earnings, growth, and profit quality based on their corresponding stock pools of the Shanghai and Shenzhen 300 and the China Securities 500 (300 Quality Low Wave has additional exposure to the low wave factor). Through a multi-factor strategy, different risk and return sources are combined, allowing the two indices to achieve long-term relatively stable excess relative to their respective benchmarks. In the past 10 years, the annualized excess of the 300 quality low wave and the 500 quality index relative to the benchmark has been 4.3% and 5.0% respectively, and the annual winning rates of the excess have been 70% and 80% respectively. The excess is significant and stable.
In addition to increasing revenue, Smart Beta also reduces portfolio risk. On the one hand, allocating different factors makes risk sources more diverse and increases the dispersion of the portfolio. On the other hand, Smart Beta can focus on defense-type factors such as low volatility and quality to further reduce portfolio risk. Taking the performance of major factors in the CSI 500 in the past 10 years as an example, the long-term trend of long-term excess of profit, growth, profit quality and leverage factors in the CSI 500 fluctuates upward, while the factor compounded by the above four factors has equal weight. The maximum pullback of long and short is about 21%, and the Sharp ratio is 0.9. The risk-return characteristics of the larger category have significantly improved.
Compared with passive index investment, active investment is highly dependent on the subjective decisions of fund managers, injecting uncertainty into the investment process. Smart Beta products have high transparency. As an indexed investment, their goal is to closely track benchmarks. In addition, style exposure and stock selection rules have been clearly defined when the strategy is constructed, so that it is not influenced by subjective factors such as human emotions, and always ensure the stability and transparency of investment logic.
3. Smart Beta is deeply consistent with the concept of high-quality development
Currently, my country is at a critical stage of accelerating the pace of transformation and upgrading and striving to promote high-quality development. As the core theme of economic development, high-quality development is profoundly reshaping the investment logic of the capital market. In this context, Smart Beta shows a high degree of compatibility with the requirements of the times.
First of all, from a conceptual perspective, high-quality development abandons "extensive growth" and emphasizes quality and innovation-driven. Similarly, the Smart Beta strategy transcends traditional market value stock picking and weighted "extensive" index investment, which is highly consistent with the concept of high-quality development. Secondly, the core factors commonly used in the Smart Beta strategy are direct mappings of the micro characteristics of high-quality development. For example, the quality factor reflects "corporate profit quality and operating efficiency", the profit factor reflects "corporate profitability and profit stability", and the growth factor is against "innovation-driven" and "development momentum", focusing on the growth potential of corporate revenue and profits. By focusing on Smart Beta factor investment, we can guide funds to flow to high-quality companies with strong profitability and great growth potential. Finally, the policy environment provides a favourable environment for Smart Beta investments. The new "National Nine Articles" clearly emphasize the importance of improving the quality and investment value of listed companies, which is highly consistent with the investment logic of Smart Beta strategy. Smart Beta strategy ensures that stocks in the portfolio perform well in terms of profitability, growth, financial soundness and so on through multi-dimensional evaluation of corporate texture.In summary, in the context of high-quality development, Smart Beta products provide investors with effective tools to participate in the development of high-quality enterprises and share the dividends of economic transformation.
Looking to the future, with favorable policies such as the regulatory authorities promoting the high-quality development of indexed investment and guiding medium-and long-term funds into the market, the Smart Beta strategy has broad development space in the China market. At present, among the domestic Smart Beta products, only the dividend products are slightly larger. As the deepening reform of the capital market continues to advance, investors 'demand for refined tool products continues to increase, and innovative Smart Beta products are expected to continue to emerge. Smart Beta products help investors better grasp investment opportunities in the era of high-quality development while serving the transformation and upgrading of the real economy.