Xueqiu: CTA hedging value becomes prominent; equity asset allocation should focus on sentiment turning points

Driven by a combination of factors—including the escalation of geopolitical conflicts, hawkish statements from central banks in the US and Europe, and the repeated churn in inflation expectations—global financial markets saw notably volatile swings last week.

Broad-based A-share indices generally pulled back. Dividend-focused assets displayed defensive characteristics. The Hang Seng Index and Hang Seng Tech Index stabilized with support from the financials and consumer sectors, while Chinese concept stocks and overseas equity markets came under pressure.

In commodities, differentiation intensified. The Nanhua Commodity Index fell 2.42% over the week, Shanghai gold declined 8.97% over the week, and COMEX gold dropped by more than 11%.

As a leading private fund distribution platform, Xueqiu distributes products from top private fund managers. These distributed private fund products tend to have higher excess returns in the private fund market, larger capital scales, higher market visibility, and richer strategy diversification. Relying on data resources for in-custody (on-platform) private funds, Xueqiu has built a comprehensive strategy monitoring and analysis system.

According to Xueqiu’s latest data, last week (3.16–3.20, excluding the night session) showed clear differentiation in the performance of in-custody private funds. Some strategies demonstrated strong risk-hedging capabilities in a high-volatility environment.

Xueqiu’s head of finance and product research, Jiang Yuting, said that at the current stage, investors should stay calm, take advantage of low-level opportunities created by market panic, optimize portfolio structure, and may increase allocations to CTA strategies with “crisis Alpha” attributes and discretionary long-only products with reasonable long-term valuations. At the same time, by using arbitrage strategies to smooth volatility, investors should strive to achieve steady asset appreciation.

Xueqiu’s in-custody private strategy gains and losses and analysis

Last week, Xueqiu’s in-custody quant long strategies posted an average return of -4.55%. The market-neutral strategies posted an average return of -0.73%. The discretionary long-only strategies posted an average return of -2.57%. Quant CTA strategies posted an average return of 0.70%. Discretionary CTA strategies posted an average return of -0.85%. Macro strategies posted an average return of -3.03%. Multi-asset strategies posted an average return of -0.44%. Arbitrage strategies posted an average return of -1.03%, and convertible bond strategies posted an average return of -2.46%.

In equity-type strategies, quant long strategies saw a pullback in absolute returns, but excess returns diverged. The current market’s trading volume, volatility, and small/mid-cap crowding indicators are still in the range that is favorable for quant strategies to capture excess returns. Market-neutral strategies diverged in performance: on the stock side, excess return stability returned to a medium level; meanwhile, the expansion of futures index contango/roll cost (futures index basis) benefiting net asset values of clients already holding positions had a positive impact, but overall holding experience worsened due to increased volatility. Discretionary long-only strategies are widely expected to pull back. Market sentiment has entered a panic zone: financing balances are in decline from elevated levels, and the turnover rate remains moderately high.

CTA strategies were outstanding, especially products focused on medium-to-long cycle trends. Xueqiu’s private fund research team noted that the strategy’s cross-sectional stability was good last week and showed clear “crisis Alpha” characteristics, effectively hedging the risk of a decline in the equity market. Short-cycle strategies were more differentiated. Most discretionary CTA strategies performed poorly, mainly because global monetary policies are tightening rapidly; fund managers that rely on industry fundamentals find it difficult to adjust in a timely manner. Pure trend-following products performed relatively better.

In addition, macro and multi-asset strategies were affected by asset-driven synchronized declines. Most macro strategy products are expected to fall, though products with a higher short exposure ratio performed slightly better. Arbitrage strategies operated steadily: the high volatility and good liquidity in the stock and commodities markets created an appropriate environment for index and commodity arbitrage.

Regarding equity-type strategies, Jiang Yuting said that current market sentiment has turned to panic, and the proportion of stocks that are falling is at an extreme quantile. This is often a good timing point for establishing long-term top-performing discretionary long-only products. Investors are advised to pay attention to value sectors with attractive valuations and opportunities in Hong Kong-listed stocks. For quant long strategies, the current indicator environment is still suitable. Macro multi-asset strategies are under short-term pressure, but the sharp selloff is mainly triggered by panic and liquidity “stampedes,” and does not have long-term persistence. Once the market stabilizes, their ability to capture returns will be restored. Investors may choose to add positions at lower levels with suitable managers. For arbitrage strategies, both index and commodity arbitrage strategies are suitable to allocate; they can act as stabilizers within a portfolio. Options strategies, due to high volatility levels, can be relatively more cautious.

A private fund manager in Xueqiu’s in-custody lineup that focuses mainly on quant macro products said that, affected by the escalation of the Iran–U.S. conflict, expectations for crude oil prices and rising interest rates have continued to strengthen. This, combined with a liquidity shock caused by the synchronized downside movement of assets, has affected the market. Over the past few weeks, the institution has continuously reduced exposure across various categories of assets. On the equity side, it focuses its core allocation on large-cap and dividend-style factors. On the bond side, it concentrates on short-duration products. On the commodities side, it emphasizes soybean meal and iron ore, while allocating a relatively low proportion to precious metals and non-ferrous metals.

A discretionary long-only strategy private fund manager in Xueqiu’s lineup with a portfolio size of over 10 billion RMB believes that the recent market has experienced huge swings, and various “grand narratives” have filled the market. When there are more “story lines,” the market begins to look complex and chaotic. Each story may have its own rationale within the trend, but ultimately it will still return to performance reality. When the market’s core attention shifts from performance to expectations, investment strategies based on valuation or performance may become relatively less suitable. This switching of “performance reality—narrative expectations” is like a pendulum in the market: currently it has swung to an extreme, and what comes next should gradually be corrected, slowly returning to a logic system in which valuations match the growth of earnings.

CTA strategy allocation value becomes more prominent

Xueqiu’s private fund research team said that CTA strategies with “crisis Alpha” characteristics stand out in terms of allocation value in the current high-volatility environment, especially medium-to-long cycle trend products, which hedge drawdowns in the equity market. However, given how quickly recent trading hotspots converge into an extreme, if a war process shows an unexpected end signal, it could trigger a market reversal; therefore, products that have already achieved high returns should not be blindly chased higher. The discretionary CTA strategy suggests prioritizing managers with strong trend-following capability or strict risk control.

For the much-watched gold asset, regarding how to position it in the next phase, Xueqiu has a product in its in-custody lineup, and a macro hedging fund manager said that the current gold medium- to long-term logic is complete. Against the backdrop of deglobalization, the world falling into two major regional wars, and high interest rates, the impact of rising inflation and debt on currency value may provide stronger support to gold’s long-term fundamentals. Therefore, in a backdrop where a liquidity discount is driving volatility across all assets, perhaps there is no need to be overly pessimistic.

(Xueqiu)

(Editor: Xu Nannan)

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