A Factor Model for Selecting Chinese Public Fund Managers

Summary

This report summary presents a factor model for ranking managers of Chinese public equity and equity-oriented hybrid funds. It builds a manager-level investment index by weighting the funds each manager oversees by fund size, then evaluates candidate characteristics against subsequent three-month performance. The factor library spans return, risk-adjusted and relative performance, scale, risk, operations, and rankings. The reported study period runs from 2011 through September 2021, with factor usefulness assessed using information coefficients and related statistics.

The selected composite combines recent three-year fund return, alpha, Sortino ratio, fund scale, fund-company scale, external ratings, and incentive structure, with the factors winsorized and standardized. At each quarter end, managers are ranked and divided into five equal-weight groups held for three months; returns are compared with an equity-oriented fund index. The summary reports that the groups showed differentiation and proposes using the highest-scoring group. It provides no detailed performance figures here, and warns that changing market conditions may undermine the model.

Key ideas

• The study evaluates manager characteristics against performance over the following three months.
• Managers are represented by indices that aggregate their funds with weights based on fund size.
• The selected score combines past returns, risk-adjusted performance, scale, ratings, and incentives.
• Managers are ranked quarterly into five equal-weight groups, each held for three months.
• The summary reports group separation but warns the model may stop working as market conditions change.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.