Hedging "defeat", going long "soaring"?

In just three trading weeks, the "trend" in the asset management market has completely changed!

All strategies related to "hedging" and "neutrality", especially those quantitative strategies that have been "hot sellers" in the past three years, seem to have undergone emergency adjustments overnight.

Top quantitative institutions with diverse strategies have simply announced to "abandon" neutral strategies, leaving a group of peers in an awkward position of "neither up nor down".

At the same time, those subjective long positions that have been abandoned for three years are making a strong comeback.

Some managers have not even recovered the face value yet, but are already preparing to "make a debut" on the fundraising stage.

An "unprecedented" trend is quietly gaining momentum and surging.

Decisive Decisions by Top Institutions

As the once industry-leading quantitative institution with assets exceeding one trillion, Fantasia's acumen is extraordinary.

After experiencing three weeks of bullish market fluctuations, on October 18th, Fantasia Quantitative notified investors:

Considering the risk attributes of hedging products, the company will gradually reduce the investment positions of all hedging products to 0, and will waive the management fees for the later period of the hedging series products starting from October 28, 2024.

This was seen by the outside world as the top quantitative institution's "abandonment" of the "neutral hedging" strategy.

Fantasia Quantitative explained in its announcement:

Due to changes in the market environment, it is difficult for hedging series products to simultaneously achieve returns and reduce risk exposure. The potential risk-return ratio has significantly decreased, and future returns will be significantly lower than investors' expectations.

Therefore, investors are advised to "adjust their portfolios in a timely manner".

The words are tactful, but the "implication" is clear, opportunities are scarce here, everyone should disperse.

Why "Perform Surgery"?

Strictly speaking, neutral strategies are not the main strategies of current quantitative institutions.

A source close to Fantasia Quantitative revealed to Zishitang: The scale of this quantitative giant's neutral products is in the range of 1 billion to 1.5 billion yuan, accounting for only about 5% of its total scale. And it mainly serves consignment clients, with direct sales clients as a supplement.

However, the "relevance" between neutral strategies and other quantitative strategies is not low.

Currently, the most mainstream index enhancement strategy and neutral strategy, to some extent, are both based on multi-factor models, both intending to pursue the "alpha" (excess) returns generated by the strategy.

The only difference is that neutral strategies do not want to share the volatility of the index, so they use hedging tools to completely hedge the volatility of the index. Index enhancement, on the other hand, retains the index returns.

However, this one difference has led to huge differences in results.

Neutral strategies completely eliminate the influence of market indices but require the use of financial derivative tools to complete the hedge.

In the past few weeks, under the dual strong bullish forces of policy and funds, the derivative positions of neutral products have encountered "margin calls" multiple times, putting the entire operation in a passive state.

This may be the fundamental reason why many institutions are starting to shrink their "neutral" strategies Attachment: Net value performance table of a neutral product sold through channels

Next "Iterative" Direction

When the so-called neutral hedging strategies begin to face an "unfriendly" market environment.

The next steps to take become a topic of discussion.

The industry generally believes that there are essentially two directions.

First, strive to further increase "alpha" returns in the new market environment.

A leading channel for sales had a classic description of neutral products in the past, believing that the main value of neutral strategy products lies in:

Risk resistance (stocks + stock index futures, reducing volatility), profit-seeking (index enhancement, IPO subscriptions, price arbitrage), compounding investment (effectively avoiding market downturns).

At a time when the cost of risk-resistant strategies is rising, whether it is possible to gain more "low-risk" returns becomes a very important decision factor.

However, at present, due to the slow growth in IPO subscription returns and the increased intraday unilateral market volatility leading to short-term returns that cannot fully offset hedging costs, this profit-seeking strategy still needs further exploration by onshore institutions.

Another iterative direction is to moderately increase "Beta" returns.

But how to differentiate this from existing product layouts still requires research by industry professionals.

A private fund with billions in assets pointed out: the scale of leading quantitative institutions is mainly distributed in long stock strategies (enhanced), rather than neutral strategies.

Only some growth-oriented quantitative institutions have a higher proportion of neutral product scale, and the latter faces greater challenges.

Repositioning of Neutral Strategies

In addition to iterating on strategies, some institutions are further adjusting their main client base.

It is understood that: over the past two years, with the stock market sentiment being overly pessimistic, sales channels have increasingly viewed neutral strategies as the "main force" for scale growth.

However, channel personnel themselves also believe that once the market enters an exponential trend, high-risk, high-return long stock products may once again become the focus of sales.

At the same time, market sources revealed to us that top institutions, including Huobi, continue to engage with institutional investors (direct sales clients) to operate neutral products for this group of clients.

There is still a client base that can accept stable returns.

Currently, it is possible that two types of clients will continue to show interest in neutral products.

Firstly, clients who consistently view neutral strategies as a core holding from an asset allocation perspective.

Secondly, institutional investors emphasizing asset allocation, especially those with high capital levels, still have a certain degree of need for neutral products with high net asset safety Of course, quantitative managers may also need to quickly complete the adjustment of quantitative neutral products