At this point in time, from the perspective of the personal asset allocation of residents, the asset allocation with savings and real estate as the core is gradually shifting to equity assets. In recent years, the rapid development of index funds has made index funds the focus of equity fund development. At the same time, the convenient, transparent and low-cost characteristics of index funds have also made it an ideal tool for long China and a value investment Effective tool.
The Yu'ebao created by Tianhong allows the monetary fund to benefit 600 million people. Beginning in 2015, Tianhong Fund began to vigorously develop index funds and established a product matrix for index funds. Index funds have low fees, diversified risks, and high transparency. At the same time, they can avoid many human influences. They are excellent investment tools. The continued popularity of index funds can also allow more people to more easily share the long-term benefits brought by China's capital market.
On the occasion of the 70th Anniversary National Day, Yang Chao of the Tianhong Fund Index and Quantitative Investment Department shared with us that index funds are an ideal tool for long China.
1. The 70 years since the founding of New China is 70 years of rapid development, especially since the reform and opening up, China has created a miracle of world economic growth. If you are determined to be long in China, you can produce a good Alpha in the global asset category. If you do historical backtesting, what do you think is the main source of long China ’s Alpha?
Yang Chao: The main source of Alpha for long A shares is the increase in wealth of residents. Compared with many years ago, China's population is getting richer and richer. People's income has also increased a few times. It turned out that everyone was not particularly wealthy decades ago.
Through the drive of society, ordinary people have some savings in their pockets, which has brought improvements in real estate and housing, and also brought a large wave of consumer demand. This part of the assets that have risen over the past many years also revolves around consumption. These aspects that are closely related to the lives of residents have contributed most of the "long China" Alpha.
2. The current comprehensive environment facing China's economy is more complicated. If you look to the future, what do you think are the main driving forces for China's Alpha?
In the future, China's economy is at the core of this section. In the future, it will also require a certain technological transformation. To move to the high end of the manufacturing or wealth distribution food chain requires a fundamental breakthrough. Just like the engine of the main driving force of our entire economy, the future Alpha of our capital market comes from the continuous investment and continuous realization of this emerging technology.
3. What do you think of the relationship between capital markets and technological innovation?
I think the capital market itself is a direct financing platform, but you need a certain equity return after financing. The return on equity is divided into two parts, one is the realization of the company's own profitability in the future, and the other is that the stock price is volatile in the market. Everyone has an expectation for the future growth rate, and there will be fluctuations in the short term. Seeing whether the bottom can fall to the fundamentals is whether all expected valuations can be realized. This may be the main context of future market evolution.
4. Tianhong previously created a national-level currency fund product such as Yu'e Bao, which allowed the people to benefit from the short-term solid income of financial products, while stocks are the highest-yielding financial products in the long run, but the stock market For many people, it is a high-threshold product. Index funds, which are becoming more and more popular now, allow more citizens to share the stock market's growth dividend in a lower threshold. Tianhong has also been developing index funds vigorously since 2015. Do you share the innovations and practices of Xiatianhong in promoting national index investment?
Yu'ebao is a great innovation made by Tianhong Fund in the field of low-risk investment in the past, benefiting the public. It turned out that a large number of ordinary people put money into short-term savings, and Yu'ebao used the form of Yu'ebao's rate of return to benefit 600 million users nationwide.
In terms of the national index, from this point of view, from the perspective of the allocation of personal assets of residents, this part of the allocation with savings and real estate as the core is gradually transforming into equity assets.
Tianhong Fund chose the ideal tool, that is, a convenient, transparent and low-cost equity investment tool-index fund. I want to serve the public in the field of equity investment. From this point of view, the original intention of the national ETF is probably like this.
5. Funds are divided into active and passive categories. Active funds rely heavily on the ability of fund managers. I understand passive investment in index funds as the simplest quantitative strategy. Although this quantitative strategy is simple, it is based on domestic and foreign experience. It seems that they are highly effective and have universal financial products. Yang is always an expert in the quantitative investment field. Can I analyze the relative active funds of the index fund in terms of product and mechanism design from a more professional quantitative investment perspective? The advantages?
First of all, the index fund itself and the non-index fund are not simple active and passive relationships.
There are many branches in the exponential product. There are completely passive replication, enhanced, and smart beta. This does not mean that this product is a passive tracking method. The investment concept behind it is passive. We choose which fund or when to choose the allocation. This is one aspect. On the other hand, in the compilation of the index itself, we know that the index will be adjusted quarterly, which in itself transmits a certain idea of active investment. He just adopted the index product form to express the idea of investment. Index funds and non-index funds are not an active and passive distinction, and everyone may be confused about the concept.
Second, active funds have specific investment sciences for active funds, and passive funds have passive investment sciences. According to the needs of different investors and his characteristics, I think that choosing the right product may be a good way to answer this question. It is not an absolute concept that this product is good or not. If this product is suitable for you, it is a good product. If it is not suitable for you, it may not be a good product.
Furthermore, there are some differences for ordinary investors and institutions. For a large-scale institutional investor, due to his particularly large amount of funds, the huge amount of funds may be overall and marginally may have lost the cost-effectiveness of active management capabilities. With hundreds of trillions and trillions of assets, Beta and asset allocation are the sources that determine the vast majority of this asset's main income. In terms of Alpha, there are only a few managers who can actually create Alpha, and the sustainability question mark, even if there are, there will be certain restrictions. The super large amount of money still emphasizes asset allocation to get Beta returns. It is that its core configuration is often to adopt low-cost Beta products, that is, passive index funds, especially ETFs to configure, mainly to solve the problem of how to get Beta income.
For retail investors, there is a different demand. For example, there are some retail investors who have a deep understanding of the market. These customers have their own investment strategies and trading strategies. For him, it may be necessary to provide Give him more convenient tools for trading. To allow him to seize opportunities in the market, in fact, many retail investors are increasingly inclined to use ETFs to build their own investment strategies.
The other is that there are generally employees in the non-financial industry. They do not have as much energy to cover specific targets, market changes, industry changes, and policy changes. This part of the customer wants to use the long-term holding method to share the industry. The economic development brought him benefits. In this regard, many customers choose index-enhanced products and take a long-term commitment to the benefits of Beta, and then obtain relatively stable Alpha earnings and additional earnings.
Therefore, according to the actual needs of different customers, there are different index products to match.
6. You mentioned that many customers will choose index-enhanced products, so what are the effective means for index enhancement?
The index enhancement products of Tianhong Fund mainly adopt a multi-factor strategy. It is also a three-dimensional construction combination by constructing an Alpha model and constructing a transaction cost model. When it comes to the multi-factor model, many people think it is a quantitative strategy. In terms of timing, quantification is just a tool. The basis of the strategy conveyed behind it, or the driving force of the original strategy, is still derived from the analysis of the fundamentals of listed companies.
We talk about things like valuation, growth, and profit quality. They are actually the same as fundamental analysts when they look at the dimensions of listed companies. However, from a quantitative perspective, he may be more focused on whether these factors have a quantitative impact on the stock price of listed companies, how much influence they have, and in what time dimension, it may be more detailed.
Because we know that index-enhanced products are more about cost-effectiveness and information ratio, how do I get Alpha that is as stable as possible, so I actually cherish my active risk control. From this point of view, a big difference from fundamental investors may be that the strategy of active enhancement places more emphasis on risk management.
7. If the quantitative model of valuation, growth, profit quality, etc. is still derived from the analysis of the fundamentals of listed companies, how do you view the timing model?
Timing is a relatively low probability thing. If you have the ability to timing, escape the top in a bull market, and enter the market at the lowest point in a bear market, there are actually few people who can do this. Timing is an unlikely event, so we need to emphasize configuration and downplay timing. Without making a big mistake in the configuration, select Alpha assets as much as possible on each track of assets. This is a more rational investment thinking mode.
8. What are the core factors of your quantitative model in stock selection?
Not to mention the core factors, our consideration of listed companies is also multi-dimensional and multi-level, and each angle also follows the logic of the fundamentals.
For example, in valuation, we think that the valuation methods of companies in different industries are also different. The valuation methods also need to be adjusted at different development stages. Some companies are a little more sensitive to valuations, and some companies are a little less sensitive to valuations. They all revolve around such a logic. Valuation is a relatively strong pricing factor for equity assets. Specifically, how do we design this valuation factor, how to design other earnings quality, emotions, these things are the research of fundamentals, the observation of listed companies, the market.
9. Quantitative models also have certain limitations in different markets, so how does this model continue to evolve and change?
It's not that quantitative models have limitations on this market.
In fact, we can see that with the development of technology, we have found that many technologies such as AI have come out. From the perspective of decision-making, the human brain itself is also a decision-making system, and quantification is also a decision-making system. It cannot be said that the quantified system has the possibility of failure, and the same is true for people. It is more that the strategy itself is not suitable for this market, not quantitative or non-quantitative, so from this point of view, we think that quantification is just a tool to implement fundamental investment strategies. Each of us uses a computer. We cannot say that computers come to work instead of people at work.
10. Tianhong's index product matrix seems to be relatively rich, covering not only mainstream broad bases such as SSE 50, CSI 300, and CSI 500, but also banks, medicine, electronics, food and beverage, securities and insurance, computers, etc. For ordinary people, how do you think you should choose and invest in these index funds?
Tianhong is determined to become China's largest index supplier.
From the perspective of product layout, from 2015 to the present, we will continue to start from broad base, layout, and industry, which may continue to extend to secondary industries in the future, including more indexes, including cross-market and cross-border indexes. layout.
With so much supply, there is a question of how to choose for investors.
I think that for customers who want to obtain long-term and average returns in the market, I recommend starting from a wide base. If the customer has a strong short-term judgment ability on the market, he also has accumulated research, and I think it is cheap. For C-linked funds, ETFs on the market may be a better choice. For investors who prefer to trade, you can choose the corresponding market share to do these things.
For another part of the investor, he may be more willing to hold for a long time, so two dimensions must be considered. One is whether earnings can maintain a good benchmark for performance comparison. For example, I originally wanted to buy a CSI 300, but the result was very biased, which caused my long-term income to be different from what I expected. This is a relatively large risk. So for investors, the first thing to consider is tracking error.
Another is whether there is a certain excess return within a reasonable tracking error. Everyone thinks about the rate very much, but the thing of the rate should be integrated with your Alpha to see if it is a loss or an advantage. It may be necessary to consider choosing an enhanced product with a more appropriate rate to configure.
The third type of customers may be those who are more experienced in the industry, who are engaged in this industry or who know more about the industry. For example, people in the pharmaceutical industry have their own experience in specific fields. He is more suitable to choose a specific industry to achieve his own investment goals.
11. You also mentioned that investors pay great attention to the rate. Last year, in fact, a US asset management company such as Fidelity Fund launched a zero management fee product. What do you think of the rate?
Domestically speaking, the rate of each fund company's product is indeed higher than that of overseas products, but in fact, the overseas fee structure, the product's rate is only a small part of the comprehensive rate, others have account management The cost, including the cost of consulting, is in it, so he can reduce the product rate very low. In terms of products, he can further subsidize investors by means of securities lending, and at the same time, he can reduce the fees very low.
The domestic product charging structure is different, except for the product itself, there are no additional charges. This is the first level. On the second level, even in terms of the product's own rate, the explicit management fee custody fee we see is only part of the fund rate.
In addition, everyone in the ETF is now reducing fees. In fact, for products with large scales and good liquidity, each of them has not reduced the flagship product's fees, and only reduced the fees with smaller products. However, the impact of this fee reduction on the investor's investment experience is relatively small, because we know that, especially for ETFs, for two products with good liquidity and poor liquidity, if you trade on the market, you may The management fee for the one-year transaction went out. The costs of management fees and custody fees are completely inconsistent with the costs actually borne by investors, and are not a major contradiction.
Also, even under the same management fee, in ETF management, we have found out how to actually arrange transactions, whether it is efficient in this use position, and to close the position as high as possible, which can reduce tracking errors. The closer the position is to 100%, the lower the tracking error. However, in actual fund management, in terms of investment management, a large number of revenue factors, various rates, and how to improve the efficiency of the use of rates are also one of the costs for customers to hold funds. From a customer's point of view, to fight the price war on the front end, it is better to focus on how to reduce the overall cost of the customer and improve the customer's experience of using the product.
12. Although the market situation of the A-share market has fluctuated this year, the overall market is good. What are the valuation points of the three broad-based indexes of Tianhong Shanghai Stock Exchange, Shanghai Stock Exchange 300, and Shanghai Stock Exchange 500? Do you think it is the right time to enter the market ?
I think it is the right time to enter the market, mainly depending on how long the customer will invest.
If customers only plan to hold for half a year or one quarter, in fact, I think the entire economy is actually easing in the short term. The entire central bank, including overseas, is also easing. The entire periphery, including the domestic economy, is still at the bottom. In the range, whether the index will reach a new low, or it is hard to say if it goes down.
From a marginal point of view, at least it is not the time of the right-hand transaction, so in the short term, if you want to obtain returns in the short term, in fact, the investment thinking mode and the equity asset investment philosophy run counter to each other.
From the perspective of long-term investment, although it is hard to say that point is an absolute position, it is also good from a horizontal comparison. In terms of absolute valuation, it is indeed in a valuation position. From this point of view, if we look at the big opportunities in five years and ten years, you will not be particularly entangled in such short-term market fluctuations.
13. The theme of this issue is to be long China. Do you think it is a good time to be long China?
When it comes to doing more in China, you must not be looking at something as short as three months. I think the development of China's economy may be a cycle of several decades.
Now, although we are in a short-term shift period, there are certain fluctuations, but it is precisely because of the fluctuations that we have brought opportunities.
If we look at the big opportunities in the next few decades, if everyone is confident in China's economic development, from this point of view, we will not think about this issue from a gradient of three months.
14. Now that overseas indexes like MSCI and FTSE are increasing the weight of A shares, can you talk about the impact of increasing the A share weight of overseas indexes on Chinese assets?
The internationalization of A-shares has been continuously promoted in recent years, including the opening of QFII quotas, so the direction of the big trend will not change. Including that we find that the proportion of foreign shares in A shares has steadily increased in the past two years. The impact is twofold.
The first point is that such a fluctuation in A shares is more affected by the linkage effect of global risk assets. When an overseas investor encounters equity asset risk, he may systematically operate it. The linkage of A shares and global assets will first increase the linkage effect. It turned out that the domestic market is more like an island, and in the future, the linkage with global assets will become more obvious.
Secondly, because the overall investment period of overseas investors is slightly longer than that of domestic investors, so for high-quality companies, in terms of pricing, we will find that many domestic companies that are not very good in quality slowly value their valuations. It will be in line with internationalization. We know that many people in the country are speculating, including the effect of small companies. Slowly, I think it will be in line with international standards.
A good company will continue to have capital inflows, and it will be recognized by investors. A bad company may be promoted by the delisting mechanism, and it will be eliminated by the market and abandoned by investors. Resources will continue to focus on high-quality companies. This trend will also have a far-reaching impact on A shares from the valuation perspective.
15. Bridgewater Dario and Mr. Buffett are very optimistic about A-share assets and very optimistic about China's current investment value and investment opportunities. What do you think of this?
I think overseas investors, when they do global allocation, first of all, as an asset allocation, China is an indispensable sector, which is beyond doubt.
In the long run, whether in terms of valuation or the resilience of economic development, or from the perspective of economic structure, I think China is also an indispensable part of the world economy, including a sector that is also firmly optimistic about the future.
From this point of view, no matter how foreign investors look at us, we are in the land of China. Over the years, we have developed from a poor country to a world's second largest economy, including the future. We will continue to upgrade the industry. In this regard, both overseas and domestic investors should have a firm confidence in our economy.
16. China's economic development has entered a new era, and various industries have ushered in a new stage of development. Tianhong also has a lot of industry index funds. What industries are you more optimistic about, and how should investors grasp?
In the long run, we have a large population in China. People cannot live without food and shelter. With such a large population structure, he must have an industry corresponding to such a large population structure. From this point of view, I am still optimistic about the long-term nature of consumer companies. which performed.
In another direction, some of the industrial structure problems exposed between the Sino-U.S. Trade war are more in the cutting-edge areas of technology, especially in TMT, biopharmaceuticals, etc., and they are indeed overseas, especially in the United States. There are technical gaps in quality companies.
It is precisely because we have this gap that it also shows that we have room.
It turns out that some listed companies' products have technical gaps with American companies in terms of technology and product quality. However, since the Sino-US trade war took place, it was discovered that when American conservatism appeared, he might break my confession at any time. Caused a relatively large impact on my industry chain. Many buyers may switch from purchasing overseas products to purchasing products from domestic technology companies. In the short term, quality and technology may not be as mature as those in the United States, but if you use these things for a few years, when you have real needs and real investment, you will soon be able to catch up. Therefore, whether it is from the substitution of imports or the continuous updating of the subjective initiative to the industrial chain and the continuous climbing of the high ground of scientific and technological subjective subjective kinetic energy, the development direction of technology companies is also a direction worth investing in.
17. Tianhong recently proposed a strategy for developing a national ETF, which is also in line with our theme of going long in China. Can you share with us the core of the Tianhong National ETF?
First of all, I hope that people across the country can share the long-term benefits brought by China's capital market.
The second point is that at the product level, we have to create an industry that ordinary people can participate in, and benchmark our Yu'ebao. We have 600 million customers. Our people are very convenient to participate, unlike the private equity, one million Up.
From the perspective of inclusive finance, we must choose the product model and development path that can benefit as many people as possible from the current market environment and investors' investment habits. Earlier we chose Yu'ebao, now we choose index funds, these two points are the core of the national ETF.
Source: China Net Finance