Quantitative Models and Construction Methods 1. Model Name: Dynamic Investment Strategy Based on Valuation (PE Dynamic Investment Model) - **Model Construction Idea**: This model dynamically adjusts investment amounts based on the valuation level of the index, aiming to optimize returns by increasing investment during low valuation periods and reducing it during high valuation periods [54] - **Model Construction Process**: - At the beginning of each month, calculate the five-year historical percentile of the index's current price-to-earnings (PE) ratio - Investment rules: - If PE percentile < 30%, invest 1000 CNY - If PE percentile is between 30% and 70%, invest 500 CNY - If PE percentile > 70%, invest 0 CNY [54] - **Model Evaluation**: The model shows significant improvement in returns for broad-based indices like CSI 300 but has limited incremental benefits for value-based Smart Beta indices due to their already strong performance [55][60] 2. Model Name: Dynamic Investment Strategy Based on Moving Averages (MA Dynamic Investment Model) - **Model Construction Idea**: This model adjusts investment amounts based on the deviation of the index's current price from its 500-day moving average, aiming to capture market trends and optimize returns [54] - **Model Construction Process**: - At the beginning of each month, calculate the deviation: `(Current Index Price - 500-day Moving Average) / 500-day Moving Average` - Investment rules: - If deviation < -50%, invest 1000 CNY - If deviation is between -50% and -35%, invest 800 CNY - If deviation is between -35% and -20%, invest 600 CNY - If deviation is between -20% and 20%, invest 500 CNY - If deviation is between 20% and 35%, invest 400 CNY - If deviation is between 35% and 50%, invest 200 CNY - If deviation > 50%, invest 0 CNY [54] - **Model Evaluation**: Similar to the PE dynamic model, this strategy improves returns for broad-based indices but has limited impact on value-based Smart Beta indices [55][60] --- Model Backtesting Results 1. PE Dynamic Investment Model - **CSI 300 Index**: - 3-year XIRR: Average return improved from -0.06% (normal investment) to 2.16% [56][58] - 5-year XIRR: Average return improved from 0.67% (normal investment) to 3.25% [56][58] - **Value-Based Smart Beta Indices**: - Limited incremental benefits, with average XIRR improvements of less than 0.3% compared to normal investment [56][58] 2. MA Dynamic Investment Model - **CSI 300 Index**: - 3-year XIRR: Average return improved from -0.06% (normal investment) to 0.08% [56][58] - 5-year XIRR: Average return improved from 0.67% (normal investment) to 0.86% [56][58] - **Value-Based Smart Beta Indices**: - Similar to the PE model, incremental benefits were minimal, with average XIRR improvements of less than 0.5% [56][58] --- Quantitative Factors and Construction Methods 1. Factor Name: Dividend Yield - **Factor Construction Idea**: Select stocks with high and stable dividend yields to construct indices with strong income-generating potential [12][21] - **Factor Construction Process**: - Select stocks with at least three consecutive years of cash dividends - Rank stocks by average dividend yield over the past three years - Weight stocks by dividend yield or a combination of dividend yield and other factors (e.g., volatility) [21][23] - **Factor Evaluation**: Provides stable returns and lower volatility, making it suitable for defensive strategies [15][25] 2. Factor Name: Free Cash Flow - **Factor Construction Idea**: Focus on companies with strong free cash flow generation, which indicates financial health and value potential [12][21] - **Factor Construction Process**: - Select stocks with positive free cash flow over the past three to five years - Rank stocks by free cash flow yield - Exclude financial and real estate sectors - Weight stocks by free cash flow yield [21][23] - **Factor Evaluation**: Delivers higher average returns but with greater volatility compared to dividend yield factors [15][25] --- Factor Backtesting Results 1. Dividend Yield Factor - **Indices**: - CSI Dividend Index: 5-year XIRR average return of 9.01% [53] - CSI Dividend Low Volatility 100 Index: 5-year XIRR average return of 10.60% [53] - **Stability**: High stability with 100% profitability over 5-year periods [53] 2. Free Cash Flow Factor - **Indices**: - CSI Free Cash Flow Index: 5-year XIRR average return of 20.88% [53] - **Volatility**: Higher volatility compared to dividend yield indices, with a wider range of returns [53]