Quantitative investment in public offerings expanded significantly in the first half of the year, and the market's sharp fluctuations have raised questions about the sustainability of excess returns.

Summary of Key Points

In the first half of the year, public quantitative funds (including index enhancement and active quantification) performed exceptionally well, with their scale surging significantly (the scale of index enhancement funds exceeded 320 billion yuan for the first time). However, market volatility in July (especially the sharp decline in the tech sector) led to a substantial pullback in the net values and excess returns of most products, with some products even experiencing losses that eroded their gains from the previous half. Nevertheless, a few products demonstrated resilience, and public fund institutions continue to invest heavily in the quantitative field (with many new products launching and others awaiting approval). The integration of AI technology is becoming an important trend for the future of quantitative funds.

I. Why Did Quantitative Funds collectively suffer in July?

Market volatility increased globally in July, particularly in the tech sector, which affected quantitative funds that rely on models for stock selection:

• Sudden Market Changes: Quantitative models are typically trained using historical data and struggle to respond to unexpected events like the sudden drop in tech stocks.
• Exposure to Risky Holdings: Many quantitative products had a heavy focus on tech growth stocks; for example, Huarun Yuan Dalianghua Youxuan A held large positions in companies like Baiwei Storage and Lanqi Technology, which were heavily impacted by the market downturn.
• Negative Excess Returns: Nearly 40% of index enhancement funds and over 50% of active quantification funds experienced negative excess returns in July (excess returns refer to the additional profits generated compared to the benchmark index), with some losing more than 10%. For instance, Huarun Yuan Dalianghua Youxuan A's excess return of 49.94% in the first half turned into a loss of -32.87% in July, wiping out all its previous gains.

II. The “Highlight Period” of the First Half: Double Success in Performance and Scale

Quantitative funds were the “dark horses” in the public fund sector during the first half of the year:

• Rapid Growth in Scale: The total scale of index enhancement funds exceeded 320 billion yuan (a 12% increase), while active quantification funds grew to 180 billion yuan (a 31% increase).
• Outstanding Performance: Over 60% of products achieved positive excess returns, with active quantification funds showing even greater flexibility—Guotai Juxin Quantitative Stock Selection A/C shares had double-digit excess returns, and Jinshin Quantitative Selection exceeded 70%.
• Effective Strategies: Funds like Jinshin Quantitative Selection used a “rotating + multi-factor” approach, focusing on tech sectors such as artificial intelligence and semiconductors, while also controlling portfolio risk to reduce losses.

III. Significant Differences in Performance: Some Lost, While Others Profited Despite the Market Decline

Despite being quantitative funds, their performance varied dramatically in July:

• Index Enhancement: 14 products had excess returns of over 10%, with a huge disparity between the best (over 10%) and the worst (over -20%).
• Active Quantification: 13 products had excess returns of over 20%, with an even larger gap (58 percentage points)—products like Jiutai Tianli Quantitative A profited despite the market downturn, while others experienced losses of over 30%.
• Reasons for the Differences: Different strategies were employed; some funds avoided the troubled tech sector, and others had effective risk management, allowing them to remain stable during the volatility.

IV. Public Funds Continue to Bet on Quantitative Funds: Numerous New Releases and Approval Processes

Institutions' enthusiasm for quantitative funds remains undiminished:

• Accelerated Issuance: 27 active quantification products have been released this year, nearly matching last year's total of 28.
• Success of Popular Products: Huaxia Zhisheng Panjing raised 15 billion yuan in one day (with an allocation ratio of only 33%), and Tianhong Zhihang Quantitative’s fundraising limit was increased from 1.5 billion to 2 billion yuan, yet it sold out within a day.
• Promising Future: Nearly 20 more active quantification products are in the approval process, indicating further growth in scale.

V. The Power of AI: A New Tool for Quantitative Funds

AI technology is transforming how quantitative funds operate:

• Smarter Models: AI can automatically identify potential mispricings in stocks and uncover more investment opportunities.
• Handling Unstructured Data: AI efficiently analyzes news, public opinion, and research reports to expand the information source for quantitative strategies.
• Positive Views from Experts: Investors like BlackRock believe that as more professional investors enter the market, the risk control and excess return advantages of quantitative funds will become even more pronounced. Fund managers at Huitianfu also agree that AI enriches the sources of excess returns for quantitative funds.

In summary, quantitative funds had a remarkable first half of the year, but their performance in July highlighted their vulnerability to sudden market changes. However, institutions continue to invest heavily in this field, and the integration of AI presents new opportunities. The future performance of quantitative funds is worth watching closely.