Combining Small-Cap and Dividend Strategies with Style-Based Rotation

Summary

This Chinese-language strategy note combines two China A-share stock-selection approaches: a small-cap, low-turnover portfolio and a dividend-focused portfolio that excludes the smallest stocks. The first ranks eligible stocks using market capitalization and turnover; the second favors higher dividend yield and lower variability in trading amount. Both exclude risk-warning stocks, recent listings, and specified exchange segments. The author compares their style exposures using a set of Barra-style factors and argues that the value tilt of the dividend strategy complements the small-cap strategy.

For rotation, the note estimates each strategy’s factor-style relationships over a 120-period window, then combines those relationships with recent five-day cumulative factor returns to score strategies and select the highest-scoring one. The author reports that the combined approach retained roughly the small-cap strategy’s annualized return while reducing its maximum drawdown by more than half, but provides no full test setup or independent validation. The note also acknowledges substantial drawdown during a bear-market period and dependence on the small-cap component, so the results should not be read as evidence of robust live performance.

Key ideas

• The portfolio pairs a small-cap, low-turnover strategy with a dividend and lower-activity-variability strategy.
• The two component strategies use different factor exposures to seek diversification.
• Strategy style is estimated over a 120-period window and combined with five-day factor returns for rotation decisions.
• The author reports a lower maximum drawdown for the rotated portfolio, while noting persistent losses in a bear-market period.
• The results are self-reported and lack enough testing detail to establish live-trading robustness.

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