Design Of FOF Fund Product Based On Multi-Factor Model

In recent years,with the rapid expansion of the public fund market,investors generate new demand.By June 2016,the number of public funds raised by 3049 and has exceeded the number of A shares.Now the fund types are increasingly rich.In addition to equity funds,bond funds,monetary funds,the alternative investment funds and QDII funds are also rapid development.Which providing FOF with ample underlying fund pool.Under the guidance of the policy,public FOF entered a new stage of development.In this paper,we have used the multi-factor model to design a low risk FOF product,by taking the advanced theory and practical experience abroad as reference.By contrast,we have selected a more robust public offering of Taurus funds as an investment target.We select the year of 2006 to 2010 Taurus funds as an alternative fund pool,excluding the duration has been terminated funds,the latest scale of less than 100 million yuan of funds,index funds,closed-end funds and monetary funds.We find four factors which influnce fund performance: income factor,risk factor,risk-adjusted income factor and manager factor to measure the seven factors.Through the factor validity test,we remove the non-significant factors.For different types of funds,we eventually select different factors.After determining the effective factors in the multi-factor model of the different types of funds,we then sort each type of alternative funds based on multiple factors,for selecting the preferred funds used as the target of investment.And then we compare the profitability of different types of fund portfolios with the profitability of average level of samples funds and performance benchmarking.We found that FOF whose design based on multi-factor model can achieve higher excess returns in most of the time.In this paper,we simulate the investment income of our FOF product,and the final results show that,after deducting various fees,the annual investment income is about 19.14%,annualized volatility of 16.32%,the maximum retracement control in 22.21%,the product can meet the needs of investors looking for medium and low risk.This paper shows that it is practicable to building a FOF fund portfolio by using multi-factor model.This paper hopes that the FOF fund product design process and the results to provide the majority of investors some help and experience.