Cailian News Agency, February 19th (Reporter Shen Shuhong)Before the Spring Festival, due to the extreme reversal of market style, a storm without warning swept through the field of private equity quantification.
Just today, the Billion Private Equity Fund released the latest operation statement, saying that before the Spring Festival, there were many situations in the market, such as the lack of liquidity and the stampede of funds in CSI 2000 and beyond, and the company’s related strategies had a heavy excess withdrawal. Among them, the company’s CSI 500 refers to an excess return of -11.70% in the week before the holiday, and the CSI 1000 refers to an excess return of -7.7% in the week before the holiday.
"After experiencing such a profound market lesson, our investment research team is very sad and self-blaming." Zhuozhi Fund said that in view of the optimization of risk control under various extreme market conditions, the R&D team carried out high-intensity strategy iterative development during the Spring Festival, and completed upgraded versions of 500-index increase, 1,000-index increase and neutral hedging strategy, which were launched on the first trading day after the Spring Festival. At the same time, the net value of the insightful quantitative products held by investors has retreated, and the fund does not charge any performance compensation before the net value is restored.
Quantitative risk control experiences unprecedented impact.
Two weeks before the Spring Festival in 2024, the A-share market fluctuated greatly, with extreme style reversal, liquidity trampling and macro restrictions, just like a storm without warning, which made the quantitative industry and quantitative risk control experience an unprecedented impact. This is not only a challenge about numbers and algorithms, but also a test of extreme risks and macro risks.
In fact, since December 2023, the Insight Fund has observed that the strategy optimizer has automatically started to continuously tighten the exposure of various styles. From January 29th to February 2nd this year, the stock market began to show a more obvious correction trend of small-cap stocks, and the futures premium also began to widen. Under such relatively difficult market conditions, the company’s strategy optimizer further tightened the risk control parameters to the lowest value in the past six months.
In that week, the strategy of Zhuozhi Fund suffered a retracement in excess, but the excess fluctuation was still within the controllable range of strategic expectations. "Considering that the strategy optimizer has adjusted the market environment in the right direction and has certain adaptability, we decided to continue to observe the performance of the strategy in the next week."
Subsequently, from Monday to Wednesday in the week from February 5 to February 8, a large amount of funds began to continuously buy CSI 500ETF and CSI 1000ETF, which triggered a variety of situations such as the lack of liquidity of CSI 2000 and after, and the trampling of funds, and the long and short forces began to be unbalanced. During this period, Zhuozhi Fund found that the original risk control system of the strategy has been difficult to control most of the excess retracement, and the core reason for the excess retracement has become that the stocks held by the strategy are not constituent stocks of CSI 500 and CSI 1000. No matter the stocks with large market value (CSI 300) or small market value (CSI 2000 and beyond), they all significantly underperformed the 500 and 1000 indexes.
During this period, in order to avoid risks, a large amount of funds stampeded to convert stocks with large market value and small market value into 500 and 1000 constituent stocks, and the chain process intensified. In this process, the company’s strategy optimizer has been constantly increasing the proportion of 500 and 1000 constituent stocks. It was not until the last trading day before the Spring Festival that the CSI 2000 Index was pulled up.
It is worth mentioning that a large number of snowballs issued in the market have been knocked in before. After knocking in, rigid stock index futures are generally closed at the same rhythm point, which leads to the expansion of stock index discount, which in turn leads to the lightening of positions such as quantitative hedging strategy, which makes the stocks in the spot market fall again, once again triggering the vicious circle of snowball knocking in.
During the two weeks before the Spring Festival, the company’s investment research team has been tracking, analyzing and optimizing the market environment, strategic risk control and sub-strategies. Especially in the last week before the Spring Festival, for two days, the investment and research team stayed up all night to discuss and optimize the strategy, hoping to find a solution to the current problem immediately.
"Our alpha strategy has historically held more Shanghai and Shenzhen 300 constituent stocks than the industry average as a risk hedge for holding small-cap stocks in the strategy group. In this week’s market, many stocks began to lose liquidity, and large-cap and small-cap stocks underperformed the 500 and 1000 indexes at the same time, and the strategy still produced a heavy excess retracement."
Risk control system fails to fully consider macro factors.
According to public information, Zhuozhi Fund was established in 2016. The founder of the company is Zhang Zhuo. There are a number of top Wall Street researchers working together on research and development, with more than 70 members, accounting for 80% of the investment research team. Most of the main members are from Tsinghua, Peking University, China University of Science and Technology, Zhejiang University, Princeton University, Columbia University, University of Pennsylvania and other well-known universities at home and abroad. They are all high-tech talents in the fields of computer, electronics and mathematics. The core competitiveness of the team lies in the establishment. At present, the company has mature technology and rapid development, and its management scale exceeds 10 billion.
Regarding the general retracement in the quantitative industry, Zhuozhi Fund said that in the market of the existing stock game of A-shares, the extreme behavior that a large amount of funds concentrated on buying broad-based ETFs led to market imbalance aggravated the transfer of liquidity in the market; The basis of superimposed stock index futures widens, and neutral strategies have the power to lighten positions (because they can make profits with larger basis), which also intensifies the lightening, rapid flight and further stepping on the quantitative industry.
At the same time, a large number of snowball products in the whole market and the continuous withdrawal of DMA leveraged funds will also have an impact, breaking the long-term logic of the data dimension. Under such non-market spontaneous behavior, the original law does not work, and the market pricing is in a disorderly state, which in turn leads to the withdrawal.
Talking about the excessive withdrawal of the company’s products, Zhuozhi Fund believes that the company’s risk control system mainly relies on the laws of historical data, and fails to fully consider the risks that may be caused by macro factors such as non-market, that is, pursuing the mathematical solution angle of the portfolio in various characteristics and keeping the benchmark similar.
Take the market value as an example. In the past, Zhuozhi Fund used to control the exposure of portfolio by weighting the market value. While holding a certain large market value stock, it also held a certain small market value stock. From a mathematical point of view, it can hedge the market value style risk by holding both large and small market value stocks to be neutral. This risk control measure has not exposed great risks in the firm market with a history of more than four years, nor has it shown excessive fluctuations in longer data, and it is long-term effective in the American market.
"However, in the market where a large amount of funds are concentrated on buying CSI 500ETF and CSI 1000ETF, the risk of the market has become whether to hold enough constituent stocks, which magnifies the impact of the risk factor of constituent stocks holding. If the 500 and 1000 constituent stocks held are not high enough, it will bring huge excess retracement. Other excess sources related to the low market value factor failed to bring other alpha benefits in the extreme trampling environment in these two weeks. "
There may be a good excessive rebound after trampling.
"After experiencing such a profound market lesson, our investment research team is very sad and self-blaming." Zhuozhi Fund said that in view of the optimization of risk control under various extreme market conditions, the company’s R&D team worked overtime during the Spring Festival and carried out high-intensity strategy iterative development. The upgraded version of the 500-finger increase, 1000-finger increase and neutral hedging strategy has been completed, and it was launched after the Spring Festival. The new version of the strategy keeps the historical similar income characteristics, and the excess volatility is controlled at 3%-4%. With the subsequent iterations, there is still room for further improvement in the strategic benefits and stability.
Specific to risk control, the company launched the sub-module of macro-risk control during the Spring Festival and made a lot of extensions to the localization characteristics of A shares, that is, to balance the mathematical laws with the characteristics of A shares as much as possible; In the aspect of excess income mining, we should persist in and further disperse the excess sources, control the position distribution, multi-methodology and multi-trading frequency bands to expand the low-correlation excess income sources, and the two optimization effects will minimize the above-mentioned tail risk impact.
It is worth mentioning that the company said that the net value of the quantitative products held by investors has been withdrawn, and the fund does not charge any performance compensation before the net value is restored.
Talking about why we continue to hold the quantitative strategy, Zhuozhi Fund said that it still refers to the development path of the US market. This wave of market may cause the overall quantitative industry to retreat, but the excess will certainly continue to hit new highs in the future. Relatively speaking, the positioning of quantification in various mainstream assets is still cost-effective.
According to Zhuo Zhi Fund, after this excessive withdrawal before the Spring Festival, there are several changes that are highly certain:
First of all, the competition of quantitative strategy will be much weakened. After experiencing this market, the overall scale of the quantitative industry will shrink. The redemption of some quantitative funds and the sharp decline of DMA scale will reduce the competition of quantitative strategies and make the excess better than before.
Secondly, the quantitative risk has been fully released. With the pre-holiday quantitative stampede and excessive withdrawal, the risks accumulated by quantitative strategies in the past years have been greatly released and even oversold. In the future, the operation of quantitative strategy will go into battle lightly and usher in a relatively good market environment.
According to the experience of overseas quantitative industry in stampede retracement, the company believes that there will generally be a good excess rebound after stampede. "After this excessive retracement, the quantitative market has been cleared, and I believe that investors will definitely usher in an excessive rebound and recovery of income."