The current situation in the A-share market is less than ideal, reminiscent of a high-speed revolving fan that leaves investors dizzy and unsure of how to proceedFaced with rapid rotations in stock performance, many are tempted to resort to broad indices like the CSI 300, which at least offers some alignment with market betaHowever, its ability to rise remains shrouded in uncertaintyOthers might opt for bond funds, mitigating the risk of loss but potentially experiencing regret if the stock market suddenly spikes, making the experience of missing out more painful than an actual financial loss.

Have you ever pondered whether there exists an investment strategy capable of simultaneously addressing the need for relative certainty in returns and the flexibility to adapt to an ever-changing market? The pursuit of this duality enables both conservative positioning and aggressive capital growth—a sweet spot that many investors envy.

Recently, a new fund has emerged that sparked my interest: the Huaxia Dividend Quantitative Stock Selection Fund, known more simply as “Huaxia Dividend Quantitative” (Class A: 021570; Class C: 021571). This fund embodies a clever solution with its unique blend of "dividends and AI algorithms" that may serve as an antidote to the unpredictability faced by investors.

In 2023, dividend assets have indeed performed vigorously, revealing a persistent upward trend

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While investors typically lean towards dividend-related indices, the limitations of merely purchasing indices become apparent over timeFor the average retail investor, tapping into artificial intelligence for dividend investment could unlock a route toward making dividends mainstream.

For anyone engaging in equity investments, allocating a portion of their portfolio to dividend assets is paramountWhy? Dividend assets represent a relatively defensive subset of equity investmentsIf investors are bullish about this year as a massive bull market, it’s likely they will gravitate towards high-growth, elastic assetsYet, the current tumultuous market understandably leads many to migrate their funds into comparatively stable assetsThe instinct to seek opportunity while avoiding risk is inherently human.

Dividends provide a “safety net,” creating a reliable source of income through company distributions

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While predicting stock price fluctuations can resemble a guessing game, consistent dividend payouts offer a more certain avenue for returnsNot surprisingly, companies that perform poorly—those tagged as "junk"—rarely issue dividendsA dividend-paying company typically exhibits solid cash flow, stable earnings, and strong operational management, equipping it with a higher capacity to withstand risks, thus bolstering investor confidence and stabilizing stock prices.

Data supports this outlookBetween 2014 and 2023, the CSI Dividend Index yielded an annualized return of 8.36%, outperforming major broad indices such as the CSI 300, CSI 500, and ChiNext Index, which paints a clearer picture of the risk-return ratio of dividend assetsWith annualized volatility significantly lower than other indices, the experience of holding dividend stocks proves comparatively smoother and more stable, contributing to a heightened Sharpe ratio—a key measure of investment quality.

Furthermore, governmental policies have continuously reinforced the momentum towards dividend wealth allocation

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Notably, the updated “Nine National Policies” introduced this year set clear directives for publicly listed companies regarding dividend payouts, reflecting regulatory priority and enhancing income certainty for dividend assetsCompanies now strive to maximize dividend distributions, thereby increasing payout rates and cultivating a market atmosphere favoring dividend stocks.

This year also bears an external advantageous factor from the Federal ReserveAs U.Sinflation remains stubbornly elevated, the prospect of interest rate cuts on the dollar is greatly delayed, compelling high rates to linger longerEven if rates eventually decline, maintaining a stable Chinese Yuan exchange rate will likely necessitate restrained interest cuts domesticallyThis interest environment poses significant disadvantages for overvalued stocks while minimally affecting dividend assets, fueling a “price comparison effect” that further nudges capital towards dividend-paying stocks.

From a valuation standpoint, dividend assets still exhibit a substantial long-term safety margin

• Yen Sees Increased Volatility
• The Collapse of the Korean Stock Market
• Fed Signals New Direction for Interest Rates
• Gold Prices Surge to Two-Week High
• CNY Faces Further Depreciation After Breaching 7.30

Despite notable increases in dividend stock prices this year, their overall valuations remain relatively lowBy May's end, the PB ratio of the CSI Dividend Index sat at a mere 14th percentile historically, indicating a stage of underestimation.

Transaction volumes for the CSI Dividend Index reflect healthy trading behaviors, void of excessive crowdingThe allocation of public funds towards dividend assets lingers at historical lows—a result of limited new public fund launchesThus, the potential for long-term increases in dividend asset holdings remains quite promising.

While dividend investment is crucial, both individual retail and institutional investors oftentimes face challenges in optimizing their approachesThe central difficulty lies in the need for timely responses to a dual landscape of rapid market changes coupled with fluctuating stock dividend yields

The volatile nature of the stock market renders individual attention insufficient; however, algorithmic solutions present robust alternatives.

To illustrate, let’s take Huaxia Dividend Quantitative as a case study to consider the application of algorithmic models in dividend investmentForemost, the scope of what constitutes a “dividend stock” within Huaxia Dividend Quantitative must successfully meet two criteria:

First, the company must have enacted cash dividends in at least one of the past two years, with the cash dividend ratio or dividend yield placing in the market's upper 50%.

Second, the business should exhibit a solid operational record without significant legal or regulatory violations, and its dividend distribution must not present any major discrepancies from operational status.

Thus, stocks are filtered to ensure that only fundamentally sound companies are included, providing a robust foundation void of ST (special treatment) stocks and those with liquidity issues—while ensuring high cash dividend yields.

With a comprehensively defined stock pool, the next step involves feeding these candidates into the algorithmic model crafted by Huaxia Fund, which assigns scores based on numerous evaluation metrics, commonly referred to as a “multi-factor model strategy.”

This multi-factor approach assesses historical price trends, industry data, supply chain correlations, macro data, trading activity, and policy information, identifying stable yet underrelated alpha among stocks while considering risk—determining what to buy or sell with effortless clarity.

The practical outcome of Huaxia Dividend Quantitative is to capture both beta returns from dividend stocks and additional alpha generated through its computer model

From this perspective, it can be seen as a specialized enhanced index fund, benchmarked to the CSI Dividend Index and aiming for superior long-term performance.

It is worth noting that numerous dividend indices existThe CSI Dividend Index stands out due to its broader stock composition and distribution, facilitating the effectiveness of algorithmic modelsMoreover, it boasts a larger proportion of “central state” properties, elevating its attractiveness.

When compared to its peers, the historical yield of the CSI Dividend Index is formidableShould the Huaxia Dividend Quantitative harness superior alpha leveraging adept algorithmic strategies, it could present itself as a highly lucrative prospect for investors.

The “dividend + AI algorithm” strategy is excellent, yet such products remain scarce in the market, attributed mainly to three reasons

Firstly, dividends tend to grow gradually, leading to lower interest among investors who typically chase short-term performanceConsequently, the slow short-term performance of dividends compared to high-growth assets has deterred many fund companies from launching similar productsYet dividend assets may reward the long-distance runner; the superior ten-year performance illustrates clear advantages over main indices.

Secondly, historically, the overall dividend yield in the A-share market has been lower, inherently limiting the number of qualifying dividend stocks—thereby stifling the effectiveness of algorithmic modelsHowever, robust government policies have increasingly encouraged dividend distributions among listed companies, gradually resolving these issues.

Thirdly, the “dividend + AI algorithm” strategy cannot simply be deployed without adequate foundational and algorithmic research capabilities

Most domestic funds excel in fundamental analysis, but the development of robust algorithmic research demands heavy investment in human resources, making it challenging for smaller fund companies to sustain.

In this realm, Huaxia Fund has distinguished itselfThe firm boasts one of the industry’s leading scales in managing active quantitative productsIn fact, it created its Quantitative Investment Department back in 2005, one of the earliest established independent quantitative teams.

By investing generously in top quantitative talents, Huaxia Fund nurtures expertise within its ranks—its appointed fund manager, Sun Ranye, offers over nine years of global experience in quantitative research, algorithmic development, and portfolio analysis with institutions such as Merrill Lynch and AQR Capital Management.

Since joining Huaxia Fund in 2019, Sun has been instrumental in the nuanced development of factor strategies employing cutting-edge machine learning algorithms