ATFX-Quantitative frequency reduction or trend, fundamental quantitative strategies are gaining attention

In the past week, quantitative investment has once again been pushed to the forefront of the trend. According to the China Fund Daily reporter, the annual turnover rate of head quantitative private equity is about 40 to 60 times, and the high-frequency volume price strategy accounts for a relatively small proportion. With the increase of quantitative managers and the growth of scale, coupled with the gradual improvement of market effectiveness, excess returns will gradually converge, and quantitative frequency reduction will be the future development trend of the industry. At the same time, fundamental quantitative gradually attracts attention.

atfx- Quantitative frequency reduction is trending, and medium and low frequencies are still the mainstream

When it comes to quantitative investing, in addition to programmed trading, mathematical models and the use of technology, many people will think of a word - high-frequency trading.

The person in charge of Jiukun Investment said that there are different types of strategies for quantitative investment, covering different methods and frequencies, and high-frequency trading is just one of them. Most of the quantitative investment in the class A share market does not involve high-frequency trading, and many trading cycles are usually at the weekly and monthly level.

Kaina Investment, which is deeply involved in fundamental quantitative strategies, said that quantitative investment uses quantitative models to price assets in the medium and long term, and buys and holds a basket of assets. Fundamental quantitative investment managers regard themselves as shareholders of a basket of stocks, systematically capture the investment value of stocks, do not chase up and sell down, and focus on medium and low frequency strategies.

According to the reporter, with the increase of quantitative managers and the growth of scale, coupled with the gradual improvement of market effectiveness, excess returns will gradually converge, and frequency reduction will be the overall trend in the future.

"Now many leading quantitative private placements are reducing the frequency, and our overall annualized turnover rate is 40-60 times. Quantitative transactions in the Chinese market are still dominated by medium and low-frequency transactions. High-frequency strategies account for a relatively small proportion due to high transaction costs and impact costs, and limited strategic capacity. The so-called frequency reduction can be understood as increasing the proportion of medium and low-frequency factors. The turnover rate is low, the strategic capacity is relatively large, and the correlation between peers is also low. The controllability of excess returns will be stronger." A 10 billion quantitative private placement in Beijing revealed to reporters.

A leading quantitative private equity firm said that the decline in the quantitative industry has continued since 2020, and the trend of lower turnover rate among leading quantitative private equity institutions is earlier. The decrease in turnover rate is more due to the limited capacity of short-cycle strategies after the expansion of management scale, which is not related to a certain type of market.

In addition, short-term transactional mispricing in the market cannot occur frequently and persistently. To achieve long-term and sustainable excess returns, we must expand new channels, such as paying deeper attention to fundamental factors and using computer technologies such as reinforcement learning to explore the deep-seated operating laws of the market.

With the continuous improvement of the overall quantitative investment management scale, the average holding period of mainstream quantitative private equity has increased. A senior private equity market person told reporters that the average annual turnover rate of mainstream quantitative equity strategies is about 30 to 60 times. The frequency reduction effect mainly depends on the quality and abundance of the manager's own reserves in the medium and low frequency factor library. If the medium cycle accumulation is deep enough, it can achieve a certain capacity and bring relatively good excess returns to customers.

Xia Shengyin, wealth management partner of Paipai Network, said that although quantitative strategies basically include high-frequency strategies from the beginning, the high-frequency strategies have a small capacity. As the scale increases, the income contribution of the high-frequency strategy part decreases. In order to solve the problem of rapid cost increase caused by the increase in transaction volume, quantitative expansion is achieved by upgrading the model, increasing the number of holdings, and diversifying investment, but it will eventually be achieved through frequency reduction. Long position cycle, insensitive to short-term prices, and larger capacity, quantitative frequency reduction can be said to be an inevitable move.

ATFX—Quantitative strategies continue to be enriched and developed

With the increase of quantitative managers and the growth of scale, quantitative strategies are also being continuously enriched and developed.

The relevant person in charge of Jiukun Investment said that subjective and quantitative institutions are integrating their respective advantages and experiences with each other, and constantly exploring technology to empower investment, such as trying to integrate alternative data analytics, the combination of fundamentals and quantification, and the development and exploration of multiple strategies. In recent years, with the development of fundamental quantification, the influence of more fundamental factors in quantitative investment decisions continues to expand, which will further promote the impact of quantification on the reasonable pricing of individual stocks and industries. In addition, the existence of quantification also has a positive effect on guiding capital flows to the real economy in areas such as technological innovation.

A leading private equity quantitative institution said that the leading quantitative institution still focuses on the intermediate frequency quantitative strategy. Although the current quantitative strategy as a whole is still too much in terms of price and quantity factors, with the development of computer computing power and the gradual deepening of research, quantitative investment can better combine the performance of factors such as machine learning to a certain extent, and can better discover the deep-seated operation laws of the market. At the same time, the effective combination of price and quantity factors, fundamental factors and alternative factors helps the quantitative strategy to reduce the relevance of the strategy and provide more options for investors' overall asset allocation.

At the same time, fundamental quantitative strategies are gradually gaining attention. The senior private market person said that in the early days of the company's establishment, considering that fundamental quantitative stock selection and mid-cycle price and volume models are the basis for managing large funds and require more time to accumulate and reserve, they are considered priority development items. However, for quantitative private equity, if the proportion of fundamental factors allocation is further increased significantly, it may still be time.

The data shows that although fundamental factors can also achieve good long-term excess returns, volatility and retracement are larger than the price-volume factor, and the return-to-risk ratio is still inferior to the price-volume factor. In the long run, fundamental factors have good allocation value and large capacity, so long-term planning still requires continued investment in research.

Kaina Investment said that the difficulty in developing fundamental quantitative strategies is that it is necessary to understand the fundamental investment framework and be skilled in using tools such as machine learning. At present, there are relatively few compound talents with both interdisciplinary capabilities.