- The report tracks the performance of style factors, including momentum, beta, and liquidity factors, which showed strong long positions, while leverage, market capitalization, and valuation factors exhibited strong short positions[3][16] - The report includes the performance of fundamental factors across different stock pools, such as the CSI 300, CSI 500, and CSI 1000, highlighting that low valuation and high growth stocks were generally strong[5][6][7][20][22][25] - Technical factors' performance was mostly positive, with high volatility and long-term momentum stocks performing well, except for the 20-day momentum factor which showed negative performance[4][18][23][26] - The GRU factors' performance was weak overall, with the close1d model showing strong performance, while other models like open1d and barra1d experienced drawdowns[4][5][6][7][18][20][23][26] - The report details the construction and recent performance of the GRU long-only portfolios, noting that the barra1d model outperformed the CSI 1000 index by 0.38%, while the open1d and close1d models underperformed by 0.40%-0.53%[8][31][32] Factor Construction and Performance - **Barra Style Factors**: The report lists several style factors such as Beta, Market Cap, Momentum, Volatility, Non-linear Size, Valuation, Liquidity, Profitability, Growth, and Leverage, with detailed formulas for each[14][15] - **Fundamental Factors**: The report tracks various fundamental factors, including unexpected growth and growth-related financial factors, with mixed performance across different stock pools[4][5][6][7][18][20][22][25] - **Technical Factors**: The report includes several technical factors, such as 20-day momentum, 60-day momentum, 120-day momentum, and various volatility measures, with detailed performance metrics[4][18][23][26] Factor Performance Metrics - **Fundamental Factors**: - Operating Turnover: -1.14% (1 week), 4.19% (1 month), -11.23% (6 months), -11.52% (YTD), -1.86% (3-year annualized), 3.31% (5-year annualized)[19] - ROC: -0.68% (1 week), 0.89% (1 month), -10.51% (6 months), -10.59% (YTD), -13.06% (3-year annualized), -11.85% (5-year annualized)[19] - ROE Growth: 0.36% (1 week), 2.01% (1 month), 10.43% (6 months), 2.27% (YTD), 0.38% (3-year annualized), 2.61% (5-year annualized)[19] - **Technical Factors**: - 20-day Momentum: -0.73% (1 week), 0.66% (1 month), -8.17% (6 months), -12.18% (YTD), -13.19% (3-year annualized), -13.77% (5-year annualized)[19] - Median Deviation: -0.38% (1 week), -3.25% (1 month), -5.83% (6 months), -4.72% (YTD), -15.12% (3-year annualized), -15.62% (5-year annualized)[19] - 60-day Momentum: 0.35% (1 week), -3.31% (1 month), 2.64% (6 months), 5.08% (YTD), -12.82% (3-year annualized), -16.17% (5-year annualized)[19] GRU Model Performance - **GRU Long-Only Portfolios**: - open1d: -0.40% (1 week), -0.20% (1 month), 2.37% (3 months), 6.32% (6 months), 7.16% (YTD)[32] - close1d: -0.53% (1 week), -0.83% (1 month), 4.38% (3 months), 6.80% (6 months), 6.59% (YTD)[32] - barra1d: 0.38% (1 week), -0.25% (1 month), 0.85% (3 months), 2.85% (6 months), 3.78% (YTD)[32] - barra5d: 0.00% (1 week), -0.36% (1 month), 3.59% (3 months), 7.41% (6 months), 8.37% (YTD)[32] - Multi-Factor: -0.38% (1 week), -0.30% (1 month), 1.62% (3 months), 2.54% (6 months), 2.54% (YTD)[32]

Quantitative Models and Construction - **Model Name**: Three-dimensional Timing Framework **Construction Idea**: The model integrates liquidity, divergence, and prosperity indicators to assess market timing and risk levels[7][14][16] **Construction Process**: 1. **Liquidity Index**: Tracks market liquidity trends[22] 2. **Divergence Index**: Measures market disagreement levels[20] 3. **Prosperity Index**: Evaluates industrial prosperity trends[26] 4. Combines these three dimensions to form a comprehensive timing framework[14] **Evaluation**: Demonstrates stable performance in identifying market timing opportunities[16] - **Model Name**: Financing-Active Large Order Flow Intersection Strategy **Construction Idea**: Combines financing and large order flows to identify industries with strong capital inflows[34][40] **Construction Process**: 1. **Financing Flow Factor**: Neutralizes market capitalization and calculates the net financing buy-sell difference over a 50-day average[40] 2. **Active Large Order Flow Factor**: Neutralizes transaction volume and ranks net inflows over the past year, using a 10-day average[40] 3. Filters extreme industries and integrates both factors to enhance stability[40] **Evaluation**: Achieves stable annualized excess returns with reduced drawdowns compared to other strategies[40] Quantitative Models Backtesting Results - **Three-dimensional Timing Framework**: Historical performance shows stable risk assessment and timing capabilities[16] - **Financing-Active Large Order Flow Intersection Strategy**: - Annualized excess return: 13.5% - IR: 1.7[40] - Weekly absolute return: -1.6% - Weekly excess return: -0.1%[40] Quantitative Factors and Construction - **Factor Name**: Valuation Factors **Construction Idea**: Focuses on valuation metrics such as earnings yield and book-to-market ratios[46][47] **Construction Process**: 1. **Earnings Yield (ep_fy3)**: $ ep\_fy3 = \frac{1}{PE\_FY3} $ 2. **Book-to-Market Ratio (bp)**: $ bp = \frac{Shareholder\_Equity}{Market\_Value} $ 3. Neutralizes industry and market capitalization effects[46][48] **Evaluation**: Demonstrates strong performance across multiple timeframes and indices[46][48] - **Factor Name**: Growth Factors **Construction Idea**: Captures growth metrics such as revenue and profit growth rates[46][49] **Construction Process**: 1. **Revenue Growth (yoy_or)**: $ yoy\_or = \frac{Current\_Revenue - Previous\_Revenue}{Previous\_Revenue} $ 2. **Profit Growth (yoy_np)**: $ yoy\_np = \frac{Current\_Net\_Profit - Previous\_Net\_Profit}{Previous\_Net\_Profit} $ 3. Neutralizes industry and market capitalization effects[46][50] **Evaluation**: Performs better in large-cap indices and shows consistent excess returns[49][50] Quantitative Factors Backtesting Results - **Valuation Factors**: - Weekly excess return: 1.5%-2.18% - Monthly excess return: 1.46%-3.85%[48] - **Growth Factors**: - Weekly excess return: 1.52%-3.89% - Monthly excess return: 0.79%-3.02%[50] Quantitative Portfolios and Construction - **Portfolio Name**: Index Enhancement Portfolios **Construction Idea**: Adjusts factor selection based on research coverage to enhance index performance[51] **Construction Process**: 1. Divides stocks into high and low research coverage domains[51] 2. Applies suitable factors for each domain to optimize portfolio construction[51] **Evaluation**: Outperforms original index selection methods in terms of excess returns[51] Quantitative Portfolios Backtesting Results - **Index Enhancement Portfolios**: - **HS300**: - Weekly absolute return: -0.89% - Weekly excess return: 0.03% - Annualized excess return: 7.77%[52] - **CSI500**: - Weekly absolute return: 0.16% - Weekly excess return: 0.40% - Annualized excess return: 9.82%[52] - **CSI1000**: - Weekly absolute return: -0.58% - Weekly excess return: -0.74% - Annualized excess return: 9.26%[52]

Core Insights - The report explores the construction and application of a style factor system for A-shares, focusing on four dimensions: market capitalization, valuation, profitability, and momentum [2][9][12] - A-shares have exhibited different dominant factors over various periods, with profitability leading from 2013 to 2014, small-cap factors from 2015 to 2016, valuation from 2016 to 2018, and a return to profitability dominance from 2019 to early 2021 [2][24][27] - The report predicts a resurgence of high valuation factors starting in 2025, driven by expectations of weak profit recovery and strong policy support [2][27] Style Factor Construction and Performance - The style factor system is constructed using a bottom-up approach, assigning style labels to each stock based on their factor indicators [9][12] - The performance of the style factors shows that small-cap stocks have generally outperformed large-cap stocks since 2010, with a notable fivefold return from small-cap strategies [12][17] - Valuation factors indicate that low valuation styles have been particularly strong, especially during specific periods such as 2017-2018 and 2022-2024 [14][15] Influencing Factors of Style Factors - Profitability factors are highly correlated with economic cycles, showing better performance during economic upturns [45][46] - Valuation factors are closely linked to market sentiment, with high valuation stocks performing better during periods of positive sentiment [49][50] - Market capitalization factors are significantly influenced by remaining liquidity, with small-cap factors performing strongly in liquidity-rich environments [53][54] Application of Style Factor System - The report establishes an A-share style investment system based on the identified style factors, suggesting that the current dominant styles are high profitability, high valuation, and small-cap [2][27] - The analysis indicates that the A-share market has not fully priced in the expected profit recovery, suggesting potential upside for high profitability and high valuation factors [2][27] - Different asset types exhibit varying dominant style factors, with emerging growth assets showing significant small-cap advantages and dividend assets reflecting low valuation strengths [29][33]

Valuation Factors - The report identifies that the EP, BP, and SP factors show strong predictive capabilities across different sample pools, while the PEG factor performs poorly [1][6][10] - The EP factor demonstrates significant returns, with notable performance across various industries, particularly in manufacturing [1][40] - The BP factor excels in asset-heavy industries such as utilities and finance, while the SP factor performs well in the TMT sector [1][40] Sources of Returns - The report states that the mispricing between valuation and fundamentals is the source of returns from valuation factors, with significant positive returns from low valuation-strong fundamentals combinations and negative returns from high valuation-weak fundamentals combinations [2][41][46] Long-term Effectiveness - Valuation factors are noted to be effective in the A-share market, although there is a potential for diminishing returns as the market becomes more institutionalized [3][59][75] - Historical data shows that the selected portfolios based on valuation factors achieved annualized returns of 14.87% in the CSI 800 and 19.11% in the CSI 1000, indicating the long-term effectiveness of these strategies [4][11] Industry Performance - The report highlights that the performance of valuation factors varies significantly across different industries, with the EP factor generally performing well across most sectors [40][41] - The BP factor shows strong performance in heavy asset industries, while the SP factor is particularly effective in the TMT sector [40][41] Investment Strategy - The report suggests constructing investment portfolios based on the mispricing of valuation and fundamentals, utilizing factors such as BP, EP, net profit growth rate, and ROE for selection [4][41][75] - The strategy emphasizes the importance of identifying undervalued stocks with strong fundamentals to achieve superior returns [7][75]