Core Viewpoint - The article highlights the resurgence of small-cap stocks and micro-cap indices, driven by increased liquidity, favorable policies, and a shift in market focus towards high-value assets, particularly in sectors like AI and advanced manufacturing [2][12]. Group 1: Market Performance - In the past month, small-cap and micro-cap indices, such as the CSI 2000 and Wind Micro-Cap Index, have shown strong upward trends, becoming a prominent style direction in the market [2]. - The trading structure of the market is changing, with increased turnover rates and transaction proportions for micro-cap and small-cap stocks, indicating a shift of funds towards high-value assets [2]. Group 2: Quantitative Strategy Performance - Quantitative index-enhanced funds have shown significant recovery, with the CSI 1000 Index Enhanced Strategy Index rising by 6.56% and the CSI 500 Index Enhanced Strategy Index increasing by 6.3% in the past month [6]. - The effectiveness of quantitative stock selection factors has improved, with a notable recovery in excess returns as market conditions favor the return of style and fundamental factors [6][7]. Group 3: Characteristics of Recovery - The recovery in excess returns is broad-based, benefiting from the easing of previous constraints such as style reversals and liquidity segmentation [7]. - The sustainability of excess recovery has strengthened, with increased trading activity and volatility allowing for better differentiation among stocks [7]. - Leading institutions have demonstrated renewed flexibility in excess return capabilities, enhancing their models and risk control structures [7]. Group 4: Investment Insights - Investors are advised to seize opportunities presented by the strengthening small-cap style, particularly in micro-cap indices reaching new highs [12]. - Emphasis should be placed on the capabilities of models rather than short-term rankings, focusing on teams with rapid model iteration and mature risk control [12]. - Caution is recommended against products with high crowding, large scale, or rapid position changes, as the essence of index-enhanced strategies is to pursue low volatility and stable excess returns [12].

- Profitability and turnover rate factors showed positive performance across all stock pools, delivering positive returns this month[1][10] - Valuation factors demonstrated positive returns outside the CSI 300 stock pool, while growth factors performed well in CSI 300 and CSI 500 but experienced pullbacks in other pools[1][10] - Small-cap factors showed mixed results, achieving positive returns in CSI 300 and CSI 1000 stock pools but pulling back in others[1][10] - Expectation-related factors, such as the "exceed expectations" factor, only delivered positive returns in the CSI 300 stock pool, while "expected valuation" and "expected growth rate" factors showed varied performance across different pools[1][10] - Turnover rate factor led the average long-short portfolio returns this month, especially in CSI 1000 and All-A stock pools[2][15] - Expected net profit growth factor ranked second in long-short portfolio returns, followed by profitability and growth factors, which also delivered positive average returns[2][15] - Other factors, including reversal, valuation, and small-cap factors, showed negative average long-short portfolio returns[2][15] - CSI 1000 index-enhanced funds maintained leading excess returns this month, with median performance significantly ahead of other index-enhanced funds[3][25] - CSI 1000 index-enhanced funds also led in excess returns year-to-date, followed by CSI A500 index-enhanced funds[3][25]

Core Viewpoint - The rapid growth of index-enhanced funds in the market is driven by the evolution of market conditions and the increasing demand from investors for more sophisticated investment tools, with a total scale exceeding 200 billion yuan by the end of Q1 2025, representing an increase of over 80% since the end of 2020 [1]. Group 1: Definition and Characteristics of Quantitative Index Enhancement - Quantitative index enhancement involves tracking benchmark indices while using quantitative models to optimize stock selection and portfolio management to pursue excess returns (Alpha) [1]. - Unlike traditional index funds that passively replicate constituent stocks, index-enhanced products allow fund managers to adjust holdings within certain constraints to achieve returns that exceed the index [1]. - The average return of index-enhanced funds based on the CSI 300 index was 25.48%, compared to 6.07% for ordinary CSI 300 index funds, indicating the effectiveness of the index enhancement strategy [5]. Group 2: Performance Comparison - Over the past decade, the index-enhanced fund index has shown significant excess returns, with a gain of 24.88% compared to -18.05% for the CSI 300 index and 2.26% for stock index funds [2][3]. - The performance of index-enhanced products is particularly notable during periods of market recovery, as they benefit from both beta returns from the underlying index and alpha returns from active management strategies [7]. Group 3: Mechanisms of Index Enhancement - The enhancement is achieved through two core components: modeling stock returns and optimizing the portfolio relative to the benchmark index [8]. - Three primary methods for achieving index enhancement include: 1. Multi-factor stock selection models that assess various factors such as value, momentum, growth, sentiment, and quality to improve stock selection accuracy [10]. 2. AI stock selection techniques that utilize machine learning and deep learning to uncover patterns in historical data and enhance stock selection efficiency [11][12]. 3. Fundamental enhancement strategies that analyze a company's financial health and operational efficiency to identify investment opportunities [13]. Group 4: Key Indicators for Index Enhanced Funds - When selecting index-enhanced funds, important indicators to consider include annualized excess returns, tracking error, information ratio, maximum drawdown, daily and monthly win rates, all centered around the core metric of daily excess returns [13].