| Industry allocation strategy is a part of tactical asset allocation in the management of dynamic investment portfolio, which has been widely focused and applied in recent years. The industrial trend in the global asset management indicates that the importance of industry allocation strategy is increasing day by day, compared with region, scale and style allocation. Besides this, huge amount of asset management products based on industry allocation have been promoted globally. Benjamin F. King started to introduce industry factor into multi-factor model creatively since the 60s of last century. The academic research field gradually developed same recognition of the importance of industry allocation strategy, and gradually shifted from the conventional momentum and inversion strategy to the configuration strategy based on economic cycle, monetary environment and inter-industrial correlation for the industry allocation methodology. The domestic security market attached remarkably increased importance to the industry allocation in recent years. The academic circle and major investment institutions have come up with huge amount of research findings.The theoretical basis for the industry allocation strategy is the illustration degree of industry factors in security benefit. The solid evidence and test to the domestic market indicates that the industry factors can account for 60% of the total illustration factors according to the calculation results with FF framework, and accounting for 30% of the overall illustration of cross sectional benefits, and the illustration strength of industry factors is more prominent in the balance of fluctuating market. This means that Industry allocation strategy has wide space to develop for application, and should be theoretically further explored and improved.The prerequisite for establishing industry allocation strategy is the formation of efficient industrial classification. The general standard for the industrial classification includes management type and investment type. The current various standards for the industrial classification in A share market have both advantages and disadvantages, among which the standard by CITIC relatively took into account both the industrial attributes and market attributes. On the other hand, it can be seen from the cluster analysis on A share market that on top of the general standard for industrial classification, the sectors can be grouped into resource type (coal, non-ferrous metal), finance type (bank and real estate), iron & steel, cycle investment category, non-cycle investment category, merger and reorganization type etc. altogether seven types. The result of this type of cluster analysis shows that industry allocation can base on the division of large categories of sectors.There have been tremendous amount of conclusions drawn from domestic and foreign studies on each area of industry allocation since the 60s of last century, however they are scattered at each level lacking systematic framework. While in the same time period, asset allocation and active portfolio management concept have been gradually studied in depth. Therefore, the core of the text is based on the theory of active portfolio management put forward by Grinold in 1994, which improved the framework of industry allocation strategy. Looking from the perspective of active portfolio management theory, the excess returns which can overcome the market is related to information ratio (IR). This is also attributed to the prediction capacity (information coefficient) of the investor for the expected excess returns, and the capacity of predicting the right time for the investment (strategy span). Therefore, the industry allocation framework mainly unfolds from these two aspects, on one hand, is the prediction of industrial expected rate of return, the concrete structure can be classified into the following different levels:the macro-configuration strategy based on economic cycle and monetary environment; the medium configuration strategy based on the lead-lag relationship and the micro-configuration strategy based on momentum and inversion. On the other hand, is the dynamic rebalance framework based on this type of information n and rules.The text focuses on the provision of solid evidence for the applicability of the four types of industry allocation frameworks in A share market on the basis of summarizing former study results, and improved the operatable details of the framework based on the A share market characteristics. First of all, for the industry allocation strategy based on economic cycle, the text gives theoretical elaboration of investment clock which is widely applied. The key driving forces for the change of industry wheeled by economic cycle is the following:(1) the exogenous expansion of technical impact on key industries; (2) the transmission of output from upper stream to lower stream at different links of the industrial chain; (3) the mismatch of output and investment determines the sequence of industrial returns; (4) the profitability change determines the sensitivity of returns on investment, the industry returns with stable profitability will only rely on the output. Therefore, there are some differences among industries in determining the factors of industrial cycle configuration, for example:depreciation rate, cost adjustment rate, technical impact. Some factors cause the change of ratio with the fluctuation of economic cycle, for example:output-capital ratio, investment-capital ratio, marginal return on capital etc.Besides this, for the industry allocation strategy based on monetary environment, the text studied the rule of industry allocation under the impact of quantitative monetary policy and pricing monetary policy. The results showed that the impact of pricing monetary policy on the rate of returns from industrial share price lasts shorter period of time, but with low illustration degree; While the impact of quantitative monetary policy on the rate of returns from industrial share price lasts longer period of time, but with relatively higher illustration degree; Both of the two types of monetary policies have more prominent impact on cycle industry at the initial stage, but for the long run, the financial industry is most affected. The text also established cycle rotation strategy and cross cycle stable strategy. We can see that:(1) non cycle industries are superior to cycle industries for the long run, the cycle configuration can significantly raise the returns level for those industries most sensitive to monetary environment; (2) the cycle industry rotation strategy or cross cycle optimized portfolio can both overcome the market, and the industry rotation configuration strategy is more effective than the cross cycle optimized portfolio strategy put forward by Markowitz. (3) for the long run, even the cycle industry rotation strategy will not be able to defeat the consumption and medicine industries which have long time demonstrated steady growth. Like the configuration strategy based on economic cycle, the configuration strategy based on monetary environment also laid foundation for the strategic configuration plan.Next,the text studies the configuration strategy based on the lead-lag relationship among sectors, which is very significant to reveal the style change among the industrial sectors, the solid evidence from A share market shows that:(1) the impact formed in the system by bank affects the real estate industry the most, meanwhile it has greater impact on cycle industry in short run; (2) The development trend of oil and petrochemical industry is independent, however, they can cause great impact on all the industries in short run. This impact will obviously disappear in the mid and long run; (3) the impact of cycle industry leads to the rapid drop of other industries after positive reflection. Non-ferrous metal industry causes larger market fluctuation than iron & steel industry. (4) Medical industry can typically represents consumption industry, electronics industry represents science & technology type or growth stocks;(5) the impact of all the industries in the system shows obvious signs will show in about one month, and then the impact of additional message gradually weakens, the development trends of cycle industries are relatively independent.The fourth, the text studied the conventional industry allocation strategy based on momentum and inversion, which is in the tactical adjustment position in the whole industry allocation framework. There is great discrepancy among the characteristics of the momentum of each industry in A share market, with less obvious inversion features. The momentum of cycle industries is usually shorter, basically around two weeks, while the momentum of non-cycle industries is about 8 weeks The dynamic simulation indicates that the momentum and inversion in majority of portfolio are effective, and this type of strategy can get positive returns; For the momentum strategy, the effects are more obvious during short observation time period and during holding period, while the inversion strategy requires longer observation time period and moderate holding period to see the better effects of strategy.The above-mentioned four types of configuration strategy provided foundation for predicting the expected rate of returns from industrial sectors, but this is only a part of the industry allocation framework in the whole active portfolio management. On top of that, the text systematically put forward the dynamic industry allocation framework based on the active portfolio management concept put forward by Grinold (1994). The core concept is the strategic configuration plan based on economic cycle and monetary environment, identifying the configuration direction for the long time to come; Then the comprehensive considerations were given to the expected market response, adjustment of analysts performance, lead-lag relationship among industries, momentum & inversion relationship etc., forming the rebalance of dynamic portfolio;After the configuration of large segments, further comparative studies were conducted on the categorized industries, to select potential industries with excess returns. In order to convert the information into portfolio following certain standards, the text proposed a type of quantitative calculation method, to weigh the policy making at three levels as mentioned above and to come up with operatable industry allocation plan chart for investment policy.As the extension, the text further touched on the core concept of industry allocation strategy and future development trend. Compared with macro and micro strategy, the dilemma of the industry allocation strategy includes:greater discrepancy in time dimension, comparative vague targets identified, obvious instability of targets composition themselves and more complicated information obtaining process etc. The technical industry allocation strategy is more like market analysis, relying on the wisdom competition with trade partners to gain profits. Rational operation framework can be established based on tested rules, however, there are many uncertainties about future. The instability of the industry itself in economic entities and market entities determines the incompleteness of theoretical framework. While the artistic industry allocation strategy is similar to security analysis, although more difficult compared with single security analysis, yet it has stable framework, and can obtain definite methodology for the uncertain future.The development of future industry allocation strategy may follow these two directions accordingly. The strategy model for market analysis will evolve into more complicated financial engineering and data exploitation, to gain profits by using the defects of efficacy in market transaction, and in the end gradually evolve into program trading which rely on financial technical instruments. The strategy model of security analysis will further evolve into an approach similar to security selection, will be continuously improved in different aspects, such as the profit cycle of industry, safety margin, growth space etc., and the instability of industrial structure can be addressed. With the continuous improvement and gradual mature of domestic security market, the industry allocation strategy will also demonstrate its distinctive technical and artistic features.
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