What kind of enhanced index fund works
Enhanced index investment Because different fund managers describe the investment purposes of their index-enhanced products differently, there is no unified model for enhanced index investment. The only similarity is that they all hope to provide investment performance higher than the return level of the target index. In order to make indexed investment worthy of the name, fund managers try to keep the various characteristics of the underlying index as much as possible.
There are $1 billion of assets in the world invested in an exponential way, accounting for less than 5% of the total assets managed by * * *. An important criterion to measure the performance of index-enhanced funds is whether their investment returns are better than those of purely passive funds that track the same underlying index in the same period. To achieve this goal, fund managers are required to flexibly use various strategies to optimize their investment portfolio within acceptable deviation. This paper introduces the "enhancement" strategy commonly used in mature markets, hoping to help investors to further understand this new investment product.
according to their investment strategies, index funds can be divided into fully replicated index funds and enhanced index funds. The so-called enhanced index fund is to allow some assets to actively invest on the basis of allocating most assets according to the weight of the benchmark index. Its purpose is to pursue higher returns while closely tracking the benchmark index.
judging from the few enhanced index funds in China at present, most of them have not achieved the goal of obtaining stable excess returns relative to the underlying index, so the enhanced index funds have not been concerned for a long time. However, in the past year, the performance of quantitative index enhancement fund has been outstanding, which reminds us to pay attention to the investment value of index enhancement strategy again.
Quantitative enhancement model brings excess returns
Enhanced index funds usually adopt the investment strategy of "mainly indexing investment, supplemented by active investment", and make limited adjustments to individual stocks on the basis of completely copying the target index. And its excess returns just come from this "stock adjustment". From the strategic point of view, it is divided into two categories: active stock selection and quantitative stock selection, and stock selection ability is its core competitiveness.
judging from the performance of most active stock-picking enhanced finger bases before, it is obviously not satisfactory. However, among the few enhanced index funds, the enhanced index fund owned by rich countries is a rare bright spot. The two enhanced index funds, Fuguo Tianding CSI Bonus and Fuguo CSI 3, owned by Fuguo, have achieved remarkable excess returns. Among them, the rich country Tianding CSI Bonus Fund has an excess return of 15.3% relative to the underlying index in the past year and an excess return of 2.64% in the past two years. The rich country Shanghai and Shenzhen 3, which was established later, has an excess return of 8.63% in the past year. I'm afraid this is no accident.
from the perspective of its enhancement strategy, the selection of constituent stocks through quantitative stock selection model is the source of its stable excess returns. Take Fuguo CSI 3 Enhanced Fund as an example. Based on the benchmark weight of constituent stocks in the target index, the fund uses the quantitative investment model of Fuguo to make over-allocation or under-allocation choices in a limited range. On the one hand, the combined tracking error will be strictly controlled to avoid deviating significantly from the target index, and on the other hand, we will strive to surpass the index while tracking the index.
its quantitative model is a classic multi-factor model, which is composed of multi-factor forecasting models of individual stocks and industries. Its factors are selected from several categories of factor libraries, such as value, momentum, quality, growth and emotion, through historical tests. All the factors add up to get the total score of stocks, with low-scoring stocks and high-scoring stocks. This is complicated to say and difficult to understand, but it is not difficult to understand. In fact, it is not complicated, because the performance is there.
The logic of quantifying investment is the same, and the key is whether stable factors and parameters can be found; If an effective quantitative stock selection model is found, the excess return will have certain stability. Judging from the actual operation effect, the number of stocks held by Fuguo CSI 3 enhanced fund portfolio is 1-15. From the beginning of the year to July 1, 28, the weekly winning rate of beating the benchmark is as high as 76.92%. This is a high winning rate in index-enhanced investment.
another advantage of the quantization model is that it can be copied. The quantitative enhancement of Fuguo Tianding CSI Bonus Fund is similar to that of CSI 3. The constituent stocks of the target index are divided into three categories: the constituent stocks with positive excess return expectation that are undervalued, the constituent stocks without excess return expectation that are reasonably valued and the constituent stocks with negative excess return expectation that are overvalued. After comprehensively considering the factors such as transaction cost, transaction impact, liquidity, and investment ratio restrictions, the weight of positive excess return expected constituent stocks will be increased and the weight of negative excess return expected constituent stocks will be reduced to a certain extent. As for non-constituent stocks, some alternative constituent stocks are included prospectively, or some non-constituent stocks with value are selected.
of course, the other side of quantization enhancement is to slightly amplify the tracking error. The tracking errors of Fuguo Tianding CSI Bonus and Fuguo CSI 3 funds in the past year are higher than the average level of index funds. However, from the perspective of the lower standard deviation of the fund, although the standard deviation of Zhou Du income fluctuation of Fuguo Tianding CSI Dividend and Fuguo CSI 3 is slightly higher than the average of the same type, the lower standard deviation is lower than the average of the same type.
The effect of index enhancement is different.
The fully replicated index fund aims to minimize the tracking error, improve the index tracking ability of the fund, and maximize the performance of the simulated tracking target. The enhanced index fund, to a certain extent, gives the fund manager the right to take the initiative to manage, and adopts the investment strategy of "indexing investment as the main investment, supplemented by active investment", and adjusts individual stocks to a limited extent on the basis of completely copying the target index, so as to reduce the deviation of the stock portfolio from the target index caused by transaction costs to a certain extent, and strive to effectively track and moderately exceed the target index in investment income.
since the enhanced index fund does affect its tracking effect to a certain extent, can the enhanced operation of the enhanced index fund bring the expected excess returns to the index fund? Table 1 lists the excess return information of all domestic enhanced index funds that have been established for one year and tracked by major domestic indexes relative to the underlying index.
outside the fund, the excess returns of other enhanced indexes in the past year, two years and three years are not obvious, and even bring negative excess returns.
Excellent enhanced index funds
deserve long-term attention
At present, the number of domestic enhanced index funds is relatively small. From the actual operation, the active operation of domestic enhanced index funds has greatly affected the tracking effect of enhanced index funds. From the performance of returns relative to the underlying index, although the excess returns of most enhanced index funds are not obvious, the two enhanced index funds under the Wells Fargo Fund (Weibo) have achieved significant excess returns. This also shows that the quantization strategy is more reliable to some extent.
it doesn't matter whether it's a fully replicated index fund or an index-enhanced fund, but investors can choose according to their preferences because of the different investment strategies. For investors who want to maximize similar returns with the underlying index, fully replicated index funds with better tracking error control are still the first choice. For those who want to pursue higher returns on the basis of the investment target index, the enhanced index fund is undoubtedly a better choice, but only if the investment and research team of the fund has excellent active management ability or quantitative investment ability. Of course, we hope to see enhanced index fund products in China as soon as possible, which can better control the tracking error and bring sustained excess returns to investors, which is undoubtedly a great blessing for investors.