Detailed Explanation of Quantitative Investment: Current Status and Future Trends of Quantitative Products in China

1Quantitative products are not strictly defined

The difference between quantitative products and other products is the use of more quantitative methods and less qualitative methods. However, this statement clearly does not have a strict definition. At present, the absolute majority of quantitative products use "pure quantitative" methods rather than "qualitative" information. The "qualitative" information here mainly includes the following types: ① non data public information such as news and policy information; ② Information on companies, industries, macroeconomics, etc. obtained through research by researchers from various securities firms, funds, insurance, private equity, etc. (such information is only disseminated to specific populations); ③ Qualitative results and judgments based on the above information.

At present, the information used in quantitative products is mostly fully quantitative data, which mostly comes from neatly organized databases provided by data providers such as Wanda Information and Bloomberg. The data mainly includes the following types: ① trading trends and other data of various varieties; ② Basic information data on macroeconomics, various industries, and listed companies (such as industry production and sales, company financial data, quantitative forecast information from researchers, etc.); ③ Other data organized by the data provider.

These quantitative data already cover a large part of financial information, especially historical information. In fact, not only quantitative personnel, but also macro strategy researchers and industry researchers who are not referred to as quantitative personnel, are extensively using this pure data surname information to assist in forming their own judgments, and they will also use quantitative methods. So from this point of view, there is no essential difference between quantification and non quantification.

In addition, quantitative products generally do not use qualitative research results, but this does not mean that they do not adopt the logic of qualitative research at all. The logic and rules of various investment methods often lead to the same goal. Quantitative products try to quantify these rules as much as possible. For those rules that cannot or are not easy to quantify, quantitative products cannot adopt them. That is to say, quantitative products abandon those difficult to quantify patterns, but strengthen the application of quantifiable investment patterns, which definitely has advantages and disadvantages. Generally speaking, qualitative investment methods that are difficult to quantify are the ideas of some investors, either with high returns or significant risks. Using these investment methods may result in significant differences in investment outcomes. Most quantifiable investment patterns exhibit stable performance, but may not necessarily result in high returns.

Due to the mainstream of traditional qualitative research in China, there is still a significant difference between quantitative and non quantitative products. But we believe that over time, the two will permeate each other.

2Current Quantitative Product Classification

At present, quantitative products are generally divided into three categories: passive index products, active quantitative products, and enhanced index products that fall between the two. For passive index products, it mainly focuses on passive complete replication of the index, and generally does not require too much qualitative research. What is needed is mainly some investment techniques to reduce tracking errors, which belong to the category of quantitative methods. Active quantitative products are funds that use quantitative methods for investment, and their competitive products are dominated by various active funds. Index enhanced funds aim to overcome the index, using mostly pure quantitative methods, while some enhanced products use traditional qualitative investment methods.

（1）Passive index products

From the overseas situation, passive products have gradually replaced active funds and become the mainstream in the market. And the domestic market is also undergoing this trend.

The proportion of domestic index products in equity funds and hybrid funds, from2006 Of4.2%, rapidly rising to the current level24.7%。

The main reasons why index products are becoming increasingly popular are as follows.

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Active funds may not necessarily outperform indices, and the cost of selecting a base is high[/li]

Both foreign and domestic research have found that a large proportion of active funds (often exceeding half in many years, especially in years when the market is rising) cannot outperform the index.

from2005 Since the beginning of the year9 Mid year, Shanghai and Shenzhen300 The index has4 Annual increase, here4 In the middle of the year, most funds have underperformed in Shanghai and Shenzhen300; And in addition5 In the years when the overall market fell, most funds outperformed the Shanghai and Shenzhen stock markets300. Additionally, recently3 Successfully outperformed Shanghai and Shenzhen in consecutive years300 The fund only accounts for20%And recently5Successfully outperformed Shanghai and Shenzhen in consecutive years300 Only1.2%（4 Only). Given that a large proportion of funds find it difficult to outperform the index, and the performance of individual funds varies year by year, this greatly increases the selection cost for investors. Therefore, many investors choose to directly purchase index funds.

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Diversification of underlying indices[/li]

According to Wanda Information, as of11 month25 According to daily data, there are currently pure passive stock index funds in the market207 Only (excluding overseas indices, includingETF Link funds, accounting for the total number of equity and hybrid funds23.3%(Share proportion)24.7%As shown in the figure3）They tracked93 Index. Among them, there are36 Wide base index29 Theme index15 Individual Style Index and13 Several industry indices have covered topics from the overall market to popular industries. Moreover, the figure5 The number of display indices is rapidly increasing, and the coverage is becoming more and more extensive. So regardless of the market conditions, there will always be well performing indices, and investors can always find good index funds to invest in. In the future, the coverage of the index will rapidly expand, with the number of indices in mature overseas markets far exceeding the number of stocks, and there is still a lot of room for improvement in China. In addition, the innovation of the index itself will also lead the index

Funds enter a new era, and in the future, stock long short indices130/30 Class indices (some long and short) will expand into new types of stock indices. And in the future, overseas markets, bonds, currencies, commoditiesforeign exchangeThe compilation of mixed index will gradually improve. Investors who wish to invest in these non stock assets but are not very familiar with these aspects can directly purchase relevant index products.

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The product forms of index funds are diverse[/li]

Index funds are very easy to design products due to the transparency of their constituent stocks Ordinary sealing, ② ordinary opening, ③ETF④LOFGraded funds can all be index funds. stay207 Among the passive index funds of stock type, there are72 onlyETF，40 Only the parent fund of the graded fund. And things likeETF And graded funds are basically passive products in the world. The diversity of index fund types facilitates investors to carry out various arbitrage operations. This not only ensures that the net asset value of the fund remains stable and does not deviate, but also increases the fund's trading volume and share (ranking in the top of share rankings)10Among the equity funds, index funds account for half. In addition to the above-mentioned varieties, the currently popular ⑥ long short graded funds and ⑦ long short leverage are being applied forETF They are also passive index products, and the types of passive products will become increasingly diverse in the future.

（2）Enhanced index products

Currently, there are not many enhanced index funds available in the entire market35 Only stock based index enhancement funds, including13 Only based on Shanghai and Shenzhen300 To enhance the target. Overall, the performance of index enhanced funds does not differ significantly from their benchmark index, and the probability of outperforming the benchmark overall remains at50%Left and right. But compared to the figure4 It can be seen that the performance of index enhanced funds is very stable, and there is no significant fluctuation in performance with the market. And recently3 Looking at the annual situation, the enhanced fund outperforms the benchmark on average every year6.1‰, the one with the most annual wins is14.6%The one with the most losses is9.4%The amplitude is not very large.

（3）More types of innovation index products

Index products, except for single index funds (includingETF、LOF）In addition, a variety of product forms have also evolved. The current main form is a tiered fund, among whichA Fixed income products with agreed levels,B A leveraged equity fund that meets the needs of different investors. At present, there are also hot applications for long short graded index funds, long short graded currency funds, and long short leverage fundsETF etc.3 Variety of empty products. This will undoubtedly drive a new wave of index fund frenzy.

（4）Proactively quantifying products

The active quantitative funds currently available in the market include20 Most of them are equity funds. The several innovative quantitative funds newly issued this year are all hybrid funds with high upper and lower limits on stock positions, allowing for more flexible allocation and all aiming for absolute returns.

In addition, Jiashi Fund also issued a hedge fund called "Jiashi Absolute Return Strategy" this year (excluding the figure)9 Within the statistical range, the fund adopts a complete hedging strategy, usingstock market indexfuturesHedging the systemic risk of spot stocks, the fund converts the absolute returns of stocks relative to the market into absolute returns, using a quantitative strategy for hedging. We believe that more similar funds will come out in the future.

Proactive quantitative products have significant advantages in risk control, but their returns may not be significantly higher than qualitative investment funds. Under the relative return system, quantitative funds do not have much advantage, but with the advent of absolute returns and hedge fund era, risk control will become increasingly important. Funds that use more quantitative operations will perform better in terms of stable returns and are more likely to attract absolute return investors.

（5）The development direction of quantitative products

Quantitative products will rapidly evolve and develop in both breadth and depth, with a focus on comprehensive coverage, leverage, and both long and short positionsT 0Nonlinear（option）We are waiting for various developments, and these characteristics are all short-term developments that we can see. Index products will gradually cover a comprehensive range, and in terms of instrumentality, they will gradually be leveraged, and there will soon be a two-way trend of long and short positions, as well as allowing forT 0 Transactions.

Proactively quantifying products will focus on absolute returns, gain favor from investors with stronger risk control capabilities, and increase returns through leverage. More complex nonlinear products such as options will increasingly be used in quantitative products, which will have a promoting effect on risk control and improving returns.

3Quantitative products and methods will become increasingly dominant

Quantitative products have developed rapidly from scratch. We believe that the proportion of quantitative products will continue to increase in the future. We no longer need to elaborate on the development of index products, as the number and coverage of indices will surely grow rapidly. This will drive the need for asset allocation in segmented areas for investors. Active quantification technology and products will also be increasingly widely developed and used. There are at least the following reasons for this.

（1）More and more quantifiable information and patterns will emerge

People initially relied on various market information and their ability to correctly understand and process information when making investments. These two points can undoubtedly be processed through quantitative methods.

At present, there are more and more financial data providers in the market. Mainstream companies like Wanda Information can incorporate more and more information into their databases through modern technology and statistical methods, increasing annually7%New varieties of information on the left and right, so that every10 The number of information varieties that can be counted annually can double.

Nowadays, a large amount of information comes from the internet, and a very realistic thing is that the core of a website is a huge database. Whether it's news, chat, blogs, Weibo, products, music, or videos, behind it all is a database. In a database, the storage structure of each piece of data is the same.

In the future, with the development of the Internet of Things and big data cloud computing, we believe that there will be many things that we cannot imagine that can be included in quantitative statistics. All of this not only includes information about our daily lives, but also national macro statistical information, all of which can provide reference for investment.

There is no doubt that quantitative methods will also become increasingly advantageous for information processing capabilities. As various effective investment laws are gradually recognized and mastered by everyone, these laws will soon be quantified and included in quantitative products, and will continue to be improved and revised. The reality we are currently experiencing is that there are increasing numbers of personnel in various fund companies, securities firms, insurance, and private equity quantitative departments, ranging from a few to dozens. This is in the10 Years ago were unimaginable, even with the5 There is a significant gap compared to before the year. Nowadays, securities firms, such as research departments, derivatives departments, asset management departments, proprietary departments, and even business departments, have personnel engaged in quantitative research and investment. Many self operated departments of securities firms have equated quantitative and traditional investments, gradually weakening their original qualitative investment power. I think this is a very clear signal. If human and material resources are invested, there will inevitably be significant development in quantitative research in the future.

（2）The Rise of Derivatives Market and the Expansion of Product Quantity

Relying on the qualitative calculation of the human brain, its mechanical ability is limited, making it difficult to defeat computers in terms of depth and breadth of calculation. The rise of the derivatives market and the expansion of the number of trading products will inevitably pose significant challenges to the human brain in terms of computational complexity (depth) and repetitive computational complexity (breadth).

It is difficult to clarify their patterns without the use of quantitative techniques.

In fact, at present, stock index futures and treasury bond futures are relatively simple derivatives, and their prices are very similar to spot prices. But with the introduction of options soon after, it is no longer possible for the human brain alone to provide a reference price for options. And, just in Shanghai and Shenzhen300 For stock index futures, currently simulated contracts include62 The number of options may increase further in the future, and if combined with future individual stock options, the quantity will be extremely large. Due to the different parameter terms of each option and the rolling issuance, I estimate that most traditional fund managers are overwhelmed at first glance. To maintain rationality at this point, quantitative methods must be used. Another point is that the prosperity of the derivatives market is inevitable. The options and futures markets abroad are both larger markets than the stock market, and this will certainly be the case in China in the coming years. Moreover, if future new products do not participate in option futures, they will inevitably have no competitive advantage. To participate, it is necessary to extensively use quantitative methods.

Not only in the derivatives market, but also in the future, there will be more and more varieties of stocks, bonds, commodities, and even foreign exchange. A fund manager cannot balance all varieties, and for unfamiliar investment varieties, they may adopt passive allocation strategies or quantitative methods to grasp the main rules. In addition, the investment positions and operational balance interactions among multiple varieties need to be quantified from an overall perspective.