Guoxin Securities·2025-06-08 14:43Quantitative Models and Construction Methods 1. Model Name: Free Cash Flow (FCF) - Model Construction Idea: Free cash flow represents the maximum cash amount distributable to capital providers without affecting the company's sustainable development. It is a key indicator of a company's ability to convert profits into freely distributable cash flow[1][10] - Model Construction Process: The formula for free cash flow is: $ FCF = EBITDA - CAPEX - NWC - Taxes $ Where: - EBITDA: Earnings before interest, taxes, depreciation, and amortization - CAPEX: Capital expenditures - NWC: Net working capital changes - Taxes: Tax payments Alternatively, the simplified formula is: $ FCF = Operating Cash Flow - CAPEX $ This simplification assumes that NWC changes are negligible compared to other components[10][11] Additionally, the Free Cash Flow Yield (FCF Yield) is calculated as: $ FCF Yield = FCF / Enterprise Value $ Where enterprise value is defined as: $ Enterprise Value = Market Capitalization + Total Debt - Cash $[11] - Model Evaluation: The FCF metric reduces the impact of financial manipulation and reflects the company's true operating conditions. It is more responsive to changes in company fundamentals compared to traditional metrics like net profit or revenue[11][24] 2. Model Name: CSI 800 Free Cash Flow Index - Model Construction Idea: This index selects 50 stocks with the highest free cash flow yield from the CSI 800 Index to reflect the performance of companies with strong cash flow generation capabilities[31][32] - Model Construction Process: - Sample Space: CSI 800 Index constituents - Screening Criteria: - Exclude financial and real estate sectors - Positive free cash flow and enterprise value - Positive net cash flow from operating activities for the past 5 years - Top 80% in profitability ranking - Selection Method: Rank stocks by free cash flow yield and select the top 50 - Weighting Method: Free cash flow-weighted - Rebalancing: Quarterly adjustments[32] - Model Evaluation: The index avoids exposure to financial and real estate sectors, focusing on industries with stable cash flows like energy and home appliances. It demonstrates a large-cap style and concentrated holdings, with long-term outperformance against the market and peer indices[33][36][40] --- Model Backtesting Results 1. Free Cash Flow (FCF) - Annualized Return: The FCF strategy shows strong performance in both loose monetary and tight credit environments, consistently delivering excess returns relative to the market[20][23] - Macro Environment Suitability: - In a low-interest-rate environment, companies with high FCF benefit from valuation uplift - During credit tightening, companies with strong internal FCF generation exhibit resilience[23] 2. CSI 800 Free Cash Flow Index - Annualized Return: 19.16% - Annualized Sharpe Ratio: 0.87 - Annualized Volatility: 23.16% - Maximum Drawdown: 43.56% - Valuation Metrics: - Price-to-Earnings (P/E): 10.95 - Price-to-Book (P/B): 1.48 - Dividend Yield: 4.32% Compared to the CSI 800 Index, the CSI 800 Free Cash Flow Index has lower valuation metrics, indicating a value-oriented style[47][48] --- Quantitative Factors and Construction Methods 1. Factor Name: Free Cash Flow Yield (FCF Yield) - Factor Construction Idea: FCF Yield is a valuation metric that adjusts free cash flow by enterprise value, providing a normalized measure of cash flow generation relative to the company's size[11] - Factor Construction Process: $ FCF Yield = FCF / Enterprise Value $ Where enterprise value is calculated as: $ Enterprise Value = Market Capitalization + Total Debt - Cash $[11] - Factor Evaluation: FCF Yield is more responsive to changes in company fundamentals compared to dividend yield, helping to avoid value traps where declining fundamentals lead to artificially high dividend yields[24][29] --- Factor Backtesting Results 1. Free Cash Flow Yield (FCF Yield) - Performance in Macro Environments: - Outperforms in loose monetary conditions (low interest rates) - Outperforms in tight credit conditions (declining social financing growth)[20][23] - Sector Allocation Sensitivity: - Reduces exposure to sectors like coal during downturns, avoiding potential losses - More responsive to fundamental changes compared to dividend yield factors[28][29] --- Composite Strategies and Results 1. Fixed Income Plus ("Fixed Income+") Strategy - Construction: Combine the CSI 800 Free Cash Flow Index (20%) with the ChinaBond Total Treasury Wealth Index (80%), rebalanced monthly[51] - Performance: - Annualized Return: 7.09% - Annualized Sharpe Ratio: 1.67 - Annualized Volatility: 4.16% - Maximum Drawdown: 4.60% Compared to the Wind Mixed Bond Secondary Index, the "Fixed Income+" strategy delivers higher returns with lower drawdowns[54] 2. Growth + Value "Barbell" Strategy - Construction: Combine the CSI 800 Free Cash Flow Index (50%) with the A-Share Advantage Growth 50 Index (50%), rebalanced monthly[56] - Performance: - Annualized Return: 20.15% - Annualized Sharpe Ratio: 0.91 - Annualized Volatility: 23.10% - Maximum Drawdown: 40.80% The strategy balances the strengths of growth and value styles, achieving higher overall returns with improved risk metrics compared to individual indices[59][60]