Copy Buffett's stock selection logic through smart beta factor.

First, on the basis of passive index investment, add some logic of active investment.

Broad-based index is a simple investment method, and investors can get the average return of the market without spending too much time, which may even exceed most investment experts.

If investors are not satisfied with the pursuit of average market performance, they need fund managers to do some active operations on the basis of tracking the index. Under the premise of controlling the risk of portfolio, further excess returns can be obtained. There are two ways: one is to buy an index enhancement fund, and the other is to buy a strategic index fund like Smart Beta.

Index enhancement strategy refers to the "enhancement" through active investment on the basis of tracking the index, that is, on the basis of controlling the tracking error of the index, over-allocation or under-allocation of some stocks to achieve excess returns. In fact, it belongs to the category of active investment, which depends on the fund manager's stock selection ability.

SmartBeta strategy is to strictly implement the established stock selection strategy or alternative weight method according to its published methodology in order to achieve the purpose of obtaining excess returns or reducing risks, which belongs to the category of passive investment.

Compared with the index enhancement strategy, smart beta strategy has high transparency, stable and consistent style, generally lower rates, and pays more attention to the medium and long-term investment period and return.

Second, the quality value index

Smart Beta strategy adopts the method of increasing its exposure to a certain factor, which includes growth, value, momentum, volatility, dividend and so on.

There are always some factors that will play a role in different market conditions. Although the investment logic and action cycle of each factor are different, if the factors are reasonably combined, the possibility of obtaining excess returns will continue to increase.

The Huabao Quality Value Fund (50 1069) currently being issued by Huabao Fund is an intelligent beta index fund with two elements of "quality+value".

The fund tracks the S&P China A-share quality value index. The so-called quality value is to choose a company with low valuation among companies with good profitability and good quality.

Specifically, 200 stocks with the highest A-share quality score are screened out from the alternative set, and then 100 stocks with the highest value score are screened out from these 200 stocks to form index constituent stocks.

By passively copying Buffett's stock selection ideas by combining quality factors and value factors, the problems of difficult stock selection and timing are avoided.

1, value coefficient

Value factor is a factor related to stock valuation, focusing on stocks whose trading price is lower than fair value. The value factor is widely recognized in the investment field.

In Buffett's value investment system, valuation is an important part. Buffett emphasizes buying stocks with "margin of safety", and the quantitative indicators of "margin of safety" are the main value factors such as price-earnings ratio PE, price-to-book ratio PB and price-to-book ratio P/S.

Taking P/E ratio and P/B ratio as examples, this paper simply verifies the performance of stock selection returns with a single value factor. The historical performance of low P/E ratio index and low P/B ratio index relative to high P/E ratio and high P/B ratio index in the time interval of near 19.

It can be found that the cumulative historical rate of return of low P/E ratio and low P/B ratio index far exceeds that of high P/E ratio and high P/B ratio index.

During the period of 19, the annualized income of the low P/E ratio index is 9.59%, and the low P/B ratio index is 9.0 1%. The high P/E ratio index is -2.68 and the high P/B ratio index is -0.46%. It can be seen that the value factor stock selection strategy is very superior in the medium and long term.

(Source: Eastern Fortune Choice data; Time interval: 65438+1 October1,2000-2018 65438+February 3 1)

2. Quality indicators

Quality factors include three core profitability indicators, namely return on net assets (ROE), accrual rate of assets and liabilities and financial leverage ratio.

Buffett said that if you have to use an indicator to choose stocks, then he will choose ROE. It can be seen that ROE index can be regarded as the representative of quality factor.

We use Shenwan Blue Chip Index to test the performance of high ROE stocks. Shenwan Blue Chip Index selects the stocks with ROE ranking before 100 as the constituent stocks of the blue chip index and adjusts the constituent stocks twice a year.

(Source: Eastern Fortune Choice data; Time interval: 65438+1 October1,2000-2018 65438+February 3 1)

As can be seen from the above figure, Shenwan Blue Chip Index outperformed the Shanghai and Shenzhen 300 Index and the Shanghai Composite Index for a long time, reaching an all-time high of 7585 points in June 2065438+2008. This also proves the feasibility of value investment in A shares.

3. "Quality+Value" two-wheel drive

Behind the high return of blue-chip index, we can also see that the index that only relies on ROE index fluctuates more, especially 20 18, which also exposes the deficiency of single factor stock selection.

Because stocks with high ROE are usually accompanied by high valuation, if we only pay attention to stocks with low price-to-book ratio, we will find that many listed companies with low price-to-book ratio have poor performance.

Therefore, the S&P high-quality value index actually follows the principle of high quality and low price when selecting stocks, and further selects stocks with lower valuation among high-quality companies.

On the other hand, the return on net assets is the core index of enterprise profitability, which is divided into net profit rate, total assets turnover rate and financial leverage by DuPont analysis.

For some industries, high financial leverage means high business risk, which on the one hand will increase the debt cost, on the other hand will limit the future financing ability of enterprises, thus inhibiting the development of enterprises.

Therefore, the place to comprehensively consider the quality factor is that it chooses the stocks with higher ROE, and at the same time, it eliminates the stocks with higher risks through the asset-liability ratio and financial leverage.

If the company mainly depends on itself, then it is more immune to external risks.

4. Risk return characteristics

Since 2007, the performance of S&P China A-share quality and value index is much better than that of Shanghai and Shenzhen 300 Index. The data show that from 2009 to 20 18, 12, 3 1, the annualized rate of return of quality value index 10 reached 13.48%, which was higher than that of SSE 50(8.22%) and Shanghai-Shenzhen 300 (8.48%).

(Deadline: 20 18 12 3 1)

Third, the comparison of smart beta and Three Musketeers

At this point, Warburg Fund's Smart Beta Three Musketeers gathered together, namely Warburg S&P China A-share Dividend Opportunity Index Fund (factor: dividend yield), Warburg Hong Kong Shenzhen China Enhancement Fund (factor: value) and Warburg S&P China A-share Quality Value Index Fund (factor: quality+value).

These three funds have the advantages of active investment and passive management, and the three factors pay more attention to the fundamentals of constituent stocks, so they aim at medium-and long-term excess returns, which is consistent with the trend of A-share market gradually moving towards medium-and long-term allocation and can meet the needs of investors for strategic investment tools.

The author sorted out the market value distribution, industry distribution and annual income of the three index funds for your reference.

1, market value distribution

From the comparison of the weight of constituent stocks, both the high-quality value index and the Shanghai-Hong Kong-Shenzhen-China Enhanced Value Index give more than 40% weight to the top 10 constituent stocks, which makes the index as a whole biased towards the blue-chip market;

Before the dividend index, 10 shares accounted for only 18.9%. Therefore, although its average total market value is not low, it presents a mid-market style as a whole due to the scattered weights.

Specifically, the market value of high-quality value index constituent stocks is more than 50 billion, accounting for 4 1.74%, and the market value of 20-50 billion accounts for nearly 20%; The market value of 10 billion to 20 billion accounts for 18%, and stocks below 10 billion only account for about 20%.

Only about 2 1% of the stocks with a market value of more than 50 billion, 25% with a market value of 20 billion to 50 billion, 65.438+08% with a market value of 654.38 billion to 20 billion, and 30% with a market value of less than 654.38 billion.

Judging from this market value distribution, the high-quality value index is more inclined to the market style, with its Shanghai and Shenzhen 300 constituent stocks accounting for 54.58% and CSI 500 constituent stocks accounting for 20.77%;

Comparatively speaking, the dividend index is a relatively balanced index of large, medium and small market value.

2. Industry distribution

Standard & Poor's China A-share Quality and Value Index has set an industry ceiling of 40%, ensuring the diversity of industries covered by the index. The top five industries are: building materials, industry, optional consumption, energy, medicine and biology.

The index insists on selecting low-valued stocks in high-ROE industries, and it can be seen that Gree Electric, Shuanghui Development, Dong 'e Ejiao and other low-valued blue-chip stocks all appear in the top ten constituent stocks.

Standard & Poor's Shanghai-Hong Kong-Shenzhen-China Enhanced Value Index also sets the upper limit of industry weight (40%). At present, cyclical industries such as finance, industry, real estate and energy account for a relatively high proportion. Most of the top ten constituent stocks are bank stocks, which is in line with the characteristics that the index focuses on mining Shanghai and Hong Kong stocks with low valuations.

Dividend indicators are weighted by dividend rate, with the weight of each stock not exceeding 3% and that of a single industry not exceeding 33%. The top three industries are industry, optional consumption and real estate. It can be seen that the proportion of traditional industries is relatively large. These industries have passed the period of rapid development, and the constituent stock companies have developed steadily and have the ability to pay dividends.

3. Revenue

Judging from the annualized income in recent years, the dividend index is 19.73%, the value index is 16.2 1%, and the quality and value index are 13.2 1%. All three musketeers outperformed the SSE 50 Index (1658).

In terms of years, the dividend index outperformed the Shanghai and Shenzhen 300 Index in 9 years, the value index outperformed the Shanghai and Shenzhen 300 Index in 8 years, and the quality and value index outperformed the Shanghai and Shenzhen 300 Index in 6 years.

(source: Wind；; Deadline: 20 18 12 3 1)

The data shows that in a long period of time, the three smart beta indexes can outperform the mainstream indexes, but in some years, the strategy will fail, resulting in poor performance. In other words, different factors have their own suitable market environment.

In 2009, 20 14 and 20 15, the S&P dividend index showed brilliant performance and was very explosive. This is because in the market environment at that time, small-cap companies have excess returns compared with large-cap companies of the same type. The profit and loss are the same, but there is a loss in 20 17.

In fact, the value index of S&P Shanghai-Hong Kong-Shenzhen Index is to tap undervalued stocks and make reverse investments. Graham, a representative figure who follows the low valuation investment strategy in the investment field, buys the target whose price is lower than the value.

In fact, the index is also the smallest index in recent 10 years and nearly 3 years, and its defensive nature is very prominent. The disadvantage is that the bull market is easy to lose money. But in the long period, its income is also obvious, and its annualized income in recent 10 years is second only to S&P dividend index.

Standard & Poor's Quality Value Index actually combines quality factors and value factors to passively copy Buffett's stock selection ideas. In the early days, Buffett especially pursued the investment method of "picking up cigarette butts". Later, influenced by Munger, he turned to pursue high-quality enterprises with reasonable prices.

Therefore, the income of quality value index mainly comes from the profit growth of enterprises and some valuation regression. In a bear market, there is a high probability that a good stock will be killed by mistake. After 20 18 retracement, the current valuation is very attractive.

To sum up, different Smart Beta factors have different performances in bull market and bear market, but they are expected to outperform the mainstream index in a long period of time.

Generally speaking, when economic growth is relatively strong, factors such as value, kinetic energy and market value will perform well.

When economic growth is weak, the performance of high dividend yield, high quality and low volatility will be better.

After understanding these characteristics, we can make better choices in different markets.