Guoxin Securities·2025-04-11 02:45Quantitative Models and Construction Methods - Model Name: Free Cash Flow Rate Construction Idea: The free cash flow rate is designed to evaluate a company's ability to generate cash flow relative to its enterprise value, emphasizing operational quality and profitability[10][13][20] Construction Process: 1. Free Cash Flow (FCFF) is calculated as: $ FCFF = EBITDA - CAPEX - NWC - Tax $ Where: - EBITDA represents earnings before interest, taxes, depreciation, and amortization - CAPEX is capital expenditure - NWC is net working capital changes - Tax refers to income tax payments[10] 2. Simplified formula: $ FCFF = Operating Cash Flow - CAPEX $ This simplification assumes NWC changes are negligible[10] 3. Free Cash Flow Rate formula: $ Free Cash Flow Rate = Free Cash Flow / Enterprise Value $ Enterprise Value is calculated as: $ Enterprise Value = Market Cap + Total Debt - Cash $[13] Evaluation: The free cash flow rate is highly correlated with profitability and inversely correlated with leverage, making it a pure indicator of operational quality[20][22] - Model Name: CSI Free Cash Flow Index (932365.CSI) Construction Idea: The index selects companies with high free cash flow rates to reflect the performance of firms with strong cash flow generation capabilities[30][35] Construction Process: 1. Sample Space: Constituents of the CSI All Share Index 2. Screening Criteria: - Exclude financial and real estate sectors - Positive free cash flow and enterprise value - Positive operating cash flow for the past 5 years - Ranked in the top 80% by profitability quality[35] 3. Selection Method: Top 100 securities ranked by free cash flow rate[35] 4. Weighting Method: Free cash flow-weighted 5. Quarterly adjustments implemented on the second Friday of March, June, September, and December[35] Evaluation: The index avoids financial and real estate sectors, focusing on industries like energy and consumer goods, and demonstrates strong long-term performance[36][37] Model Backtesting Results - Free Cash Flow Rate: - Demonstrated two significant periods of excess returns relative to the CSI All Share Index: 2013-2016 and 2021 onwards, aligning with market-wide free cash flow improvements[13][15] - Performs well in both loose monetary environments and tight credit conditions, showcasing adaptability across macroeconomic cycles[17][18] - CSI Free Cash Flow Index: - Annualized return: 19.45% - Sharpe ratio: 0.88 - Volatility: 23.24% - Maximum drawdown: 44.06% - Dividend yield: 4.66% - Outperformed CSI All Share Index and dividend-focused indices in most years since 2014[45][47] - Probability of achieving >10% annual return: 62.02%[46] Quantitative Factors and Construction Methods - Factor Name: Free Cash Flow Rate Factor Construction Idea: Designed to capture companies with high operational quality and profitability by focusing on free cash flow relative to enterprise value[13][20] Construction Process: 1. Calculate free cash flow using the formula: $ FCFF = Operating Cash Flow - CAPEX $[10] 2. Compute free cash flow rate: $ Free Cash Flow Rate = Free Cash Flow / Enterprise Value $[13] Evaluation: The factor is highly correlated with profitability and inversely correlated with leverage, making it a robust indicator of company quality[20][22] Factor Backtesting Results - Free Cash Flow Rate Factor: - Demonstrated sensitivity to fundamental changes, outperforming dividend yield factors in cyclical industries like coal and home appliances[26][27] - Avoided value traps by dynamically adjusting sector weights based on fundamental shifts[26][29] Overseas Cash Flow Products - Product Name: Pacer US Cash Cows 100 ETF (COWZ) Construction Idea: Tracks the US Cash Cows 100 Index, focusing on companies with high free cash flow rates within the Russell 1000 Index[49][50] Construction Process: 1. Exclude financial and real estate sectors 2. Remove companies with negative free cash flow or earnings forecasts 3. Rank stocks by trailing 12-month free cash flow rate and select the top 100[49] 4. Weight by free cash flow, with a 2% cap per stock[49] Evaluation: Suitable for long-term holding, consistently outperforming the Russell 1000 Value Index over 3+ years[54][57] Overseas Product Backtesting Results - Pacer US Cash Cows 100 ETF: - 5-year performance exceeded Russell 1000 Value Index - Long-term holding (3+ years) guarantees outperformance with a 100% win rate[57][59]