From LOF Arbitrage to Quantitative Trading: When the Index Rises, Why Are You Not Making Money?

Today, we will take an in-depth look at the overall impact of quantitative funds on the current A-share market. The reason why quantitative funds possess strong competitiveness in the market is that they simultaneously hold advantages in information, technology, and capital. These three advantages create barriers that ordinary investors find difficult to overcome. We can use the well-known Huabao Oil & Gas LOF as a practical example to clearly understand the operational logic of quantitative funds and how they influence the market and the returns of ordinary investors.

Taking Huabao Oil & Gas as an example, based on the real-time trend of the U.S. upstream oil and natural gas index from the previous night, we can accurately estimate that the reasonable net value range for the day is approximately 0.883–0.889. This valuation reflects the true value anchor, but most ordinary investors lack the professional ability to calculate it precisely and can only rely on data displayed by market software and their intuition when trading.

Quantitative funds are entirely different. They have precise valuation models and real-time data support, making the true net value transparent. When ordinary investors see a premium rate of 3% displayed on platforms like Eastmoney, they often mistakenly believe the product is trading at a premium and hesitate to participate. However, they are unaware that the premium rate shown on these platforms is significantly lagging. Additionally, Huabao Oil & Gas is a T+0 trading product, which provides an excellent operational space for quantitative funds.

In specific operations, quantitative funds leverage their substantial capital advantage, often using only a small portion of their funds—for example, quickly pushing the price down to around 0.86 in the short term. Under the misleading influence of lagging premium rates, ordinary investors are easily panicked, mistakenly thinking the asset is overvalued and will continue to fall, thus selling cheap chips at the low point.

Subsequently, quantitative funds absorb a large volume of chips at the low price and then rapidly push the price back into the reasonable range. Throughout this process, the cost of pushing the price down is minimal, but the volume of chips collected at the low point is enormous. When the price returns to the true value range of 0.883–0.889, they can realize substantial profits. This behavior of exploiting information and capital gaps to create volatility and harvest retail investors is a typical operational pattern of quantitative funds.

Without the intervention of quantitative funds, the market would operate according to natural supply and demand, maintaining a stable equilibrium without large-scale sell-offs causing irrational fluctuations. However, currently, numerous quantitative funds with hundreds of billions in assets under management are active, and their share of total market trading volume continues to rise, becoming a significant force in changing the market ecosystem.

This directly results in a situation where retail investors find it increasingly difficult to profit from short-term trading. Especially for small and medium investors without professional backgrounds, capital advantages, information advantages, or time advantages, their trading success rates are severely impacted and fluctuate wildly.

Many will clearly feel that even if the index rises to 4,100 points, the market seems optimistic, but their account returns do not increase—in fact, they decline, leading to a poor investment experience. This is the most direct impact brought by the large-scale entry of quantitative funds into the market. Moreover, this logic is not limited to products like Huabao Oil & Gas LOF; all T+0 products and most stocks and trading targets across the market are being influenced by quantitative funds using similar strategies.

Essentially, quantitative funds rely on information, capital, technology, and time advantages to create a dimensionality reduction attack on retail investors, continuously intensifying market irrational fluctuations and disrupting the originally healthy market game ecosystem.

Based on the current market landscape, I predict that if subsequent quantitative funds are not subjected to more regulated restrictions, in the long run, only two types of participants are likely to survive in the market:

First, steadfast value investors who have a clear understanding of the true value of their targets—similar to having a definitive valuation anchor for Huabao Oil & Gas. When prices are pushed down, they are willing to buy; when prices rise, they sell rationally. They are unaffected by short-term fluctuations and profit from value reversion.

Second, quantitative traders, commonly known as “robots.” For ordinary investors, if they cannot compete, their only choice is to join the system, becoming part of the quantitative framework and participating in market battles through models and rules.

In the future, emotional and illogical retail trading will become increasingly unsustainable. Value investing and quantitative strategies will become the two main long-term coexistence forces in the market. This is the most core and profound impact that the development of quantitative funds has had on the entire market ecosystem to date.