Study On Investment Strategy Of The Index Classification Fund

The Chinese stock market is in a bull market trend since the second half of 2014, and the index classification fund with lever mechanism has become the focus of the market because of its eye-catching market performance. Index classification fund emerged in our country less than 6 years,and the domestic research is relatively rare. Owing to its unique lever mechanism and the complex design which are different from other domestic financial products, investors lack a full understanding of the classification fund. Based on this reason, the essay takes the SWS Securities Industry Index Classification Fund for example, trying to give investors an in-depth understanding of this product and provide some reasonable reference and suggestions.The essay systematically analyzes the leverage ratio and the conversionmechanism.Through the study we found that there is a close inverse correlation between the net value of the ordinary fund and the leverage ratio.The leverage risk can be initial defined on the basis of the net value of the ordinary fund. The conversion-mechanism provides effective exit approach for investors. Then, this paper study on two different investment strategies: firstly, the long-term investment strategy, the key is the underlying index return.The author uses the Time-Varying Hurst exponent to predict the market trend. Three types of fund share with different risk and return characteristics can be chosen by investors on the different stages of trend. Secondly, the short-term investment strategy, the key is the discounting/premium rate. In this paper,the author try to simulate the arbitrage based on the history data and reveal the three major factors which affect the conversion arbitrage: the discounting/premium rate,the cost of purchase and redemption, the transaction cost.