Core Insights - The report emphasizes the improvement of the Black-Litterman (BL) model through the integration of nested cycle theory, which enhances the Sharpe ratio and win rate of asset portfolios, recommending an increase in A-shares and US Treasuries while gradually reducing US stock positions for 2026 [2][3][10]. Group 1: BL Model Overview - The BL model combines market implied equilibrium returns with investor subjective views weighted by confidence levels, resulting in more robust expected returns for asset allocation [8][10]. - The model addresses the high sensitivity of traditional mean-variance models to parameters and incorporates subjective investor views, making it more practical [10][11]. Group 2: Impact of Nested Cycle Theory - The improvement of the BL model is primarily based on subjective views derived from nested cycle theory, which assesses the performance of major asset classes under different cycle phases [10][11]. - The model outputs significantly enhance the Sharpe ratio of portfolios, allowing for better risk-adjusted returns [10][12]. Group 3: Asset Class Outlook for 2026 - The report forecasts a gradual shift to a de-stocking phase for major economies in 2026, suggesting an increase in allocations to A-shares and US Treasuries while reducing US stock positions [2][3][10]. - The model's asset return predictions will be based on historical average data from the transition from passive to active de-stocking phases [25][26]. Group 4: Performance of Asset Classes - Historical data indicates that during the passive de-stocking phase, equities outperform other asset classes with an average annual return of 27.74% and a win rate of 60% [17][18]. - In the active re-stocking phase, equities and commodities show strong performance, with equities achieving an average return of 40.01% and a win rate of 83% [17][18]. - Bonds perform best during the active de-stocking and passive re-stocking phases, with average returns of 10.28% and 3.61%, respectively [17][18]. Group 5: Model Implementation Steps - The BL model involves several steps: calculating prior expected returns, inputting subjective views, calculating posterior expected returns, and optimizing the asset allocation [21][22][23]. - The model's implementation requires historical return data and subjective forecasts from investment managers, with constraints on asset allocation ratios [30][31].

Group 1 - The report indicates that in August, the market may return to a barbell structure, with an increase in commodity asset allocation and a marginal rise in risk asset allocation [2][4][6] - The updated BL model suggests that the allocation of risk assets will continue to show relative strength, with a marginal increase in commodity asset positions and a slight decrease in stock assets [4][8] - The report highlights that the A-share market style is expected to shift towards low valuation, weak profitability, and small-cap stocks, with a potential short-term recovery in the barbell style [4][20][23] Group 2 - The report notes that the high profitability and high valuation factors performed strongly in July, aligning with previous predictions [13][20] - It is anticipated that the market will face a phase of adjustment in August, particularly for the profitability factor, which has rebounded quickly but may be overvalued [20][23] - The report emphasizes that the focus for the upcoming month should be on the North China 50 and Shanghai Composite Index, as they align with the predicted market style [23][24]

Group 1 - The core view of the report indicates that risk assets are expected to maintain relative advantages, with the profitability factor likely to recover [2][4][10] - The asset allocation model is an improved version of the Black-Litterman (BL) model, which combines market consensus with active views to optimize asset allocation and enhance the Sharpe ratio [3][5] - The model predicts that in the third quarter of 2025, the allocation ratio for domestic stocks will continue to increase while the bond allocation ratio will remain relatively high [10][11] Group 2 - In the A-share market, the profitability factor is expected to recover, and the advantage of small-cap stocks is likely to continue [2][17] - As of June 30, 2025, the market style performance for the second quarter showed strong results for small-cap and low-valuation factors, with weak profitability and weak reversal [13][16] - The report recommends focusing on indices such as the ChiNext Index, CSI A500, and CSI 2000, which exhibit high profitability and small-cap attributes [20][21]