China managers turn to big data for new funds

Chinese manager Dacheng is to launch “big data” fund partnerships in an attempt to improve stock selection for investors.

The move has highlighted a growing wave of big data product launches in China, which has seen fund houses team up with search engines, e-commerce firms and social media platforms.

The groundbreaking tie-ups seek to expand their internet finance businesses and improve investment efficiency through exploitation of huge data-sets.

Shenzhen-based Dacheng Fund Management has teamed up with Qihoo 360 and Snowball to launch two new indices with the China Securities Index Company. Dacheng and Qihoo, a leader in internet security products, launched the CSI 360 Internet Plus Big Data 100 Index on August 10. The firm has also formed a partnership with Snowball, China’s social trading investment network platform, to launch the CSI Snowball Selected Big Data index on September 15.

Dacheng is set to launch two funds which will track these two indices in October and November. It plans to launch a series of funds using similar big data indices and is in talks with six potential partners. The firm has built a 16-strong quantitative team which is responsible for the management of its big data products.

Wen Zhimin, chief strategy officer at Dacheng, said: “We want to dig for value among listed stocks with higher efficiency, and provide a new investment experience for mainland investors.

“Some US hedge funds have already used big databanks from Google and Twitter to analyse market sentiment changes, but Chinese fund managers are the first to apply big data in mutual fund products.

“[The big data fund series] is part of our internet finance business plans - we are directly distributing funds via our own mobile application and WeChat [Tencent’s social media platform], and connecting our money-market funds to various banks’ internet platforms.”

While “big data” sounds like a new theory to many investors, Wan sees it as allowing fund companies to launch niche products.

Dacheng will use a databank - the top 80% of stocks followed by 10 million Snowball users in 30 days - as the first factor in screening stock, and will then combine it with traditional financial analysis factors such as growth, capitalisation, valuation and momentum to identify 100 stocks for the index. The index will rebalance each month. Dacheng finds that those stocks which have more followers have a positive correlation with price movements.

Wen believes Dacheng can obtain a better understanding of market sentiment by using such an approach, mainly because the volatile A-share market is dominated by retail investors.

The 360 Internet Plus index was designed using similar methodology, while its primary data bank comes from Qihoo’s search engines, browsers and mobile application, which have more than 400 million users. It has identified 100 companies which are called “internet plus”, a term Chinese Premier Li Keqiang coined to describe traditional industries which integrate with the internet to fuel economic growth and transition. But Dacheng has found that results generated over the past month have been reverse indicators, meaning such stocks have been discovered by investors already.

In a market dominated by homogenous products, however, Dacheng is not the only manager looking into such big-data products.

Snowball and Shenzhen-based fund house Bosera are set to launch a similar index which will be tracked by its upcoming mutual fund.

Tianhong Asset Management, China’s largest fund house, also plans to launch a big-data index in collaboration with Snowball. Earlier in March, Tianhong launched an actively-managed mixed asset fund –Tianhong Cloud Life – using a big-data approach to identify stocks.

Shenzhen-based China Southern Asset Management teamed up with Sina Finance in April to launch an index fund through which the manager identifies stocks by quantitatively analysing Sina’s databank.

Guangzhou-based GF Fund Management teamed up with Baidu in October last year to debut the first index fund using a databank from China’s largest search engine.