China ** newspaper reporter Zhang Yanbei Sun Xiaohui.
Since the beginning of this year, micro-cap stocks have soared, causing widespread concern in the market. In particular, the Wind Micro Cap Index has risen by more than 49% this year. 
What is the main logic for micro-cap stocks to continue to bullish this year?How is the small-cap style in 2023** different from the past?Can micro-cap stocks continue their strong performance?What are the main challenges or difficulties in investing in micro-cap stocks?To this end, a reporter from China's ** newspaper interviewed:
Wang Huaixun, Manager of Oriental Quantitative Growth Flexible Allocation Mix
Taixin Industry Select Blend** Manager Dong Shanqing
Qiao Peitao, Deputy General Manager of Equity Investment Department of Founder Fubang
Huang Zhigang, assistant to the general manager of Nanhua ** and general manager of the quantitative investment department
Golden Eagle Equity Research Department, Assistant Manager Jin Dalai
The above-mentioned ** manager believes that since the beginning of this year, the large market capitalization and high prosperity of the institution's heavy position have been under heavy selling pressure, and the flow of funds to the small market value has been hedging, coupled with the significant adjustment of the small market value in previous years, with the gradual listing of specialized and special new enterprises, the quality of small market capitalization enterprises has improved, and the value has begun to be reasonably revalued, and the two forces have been superimposed, resulting in a strong performance of micro-cap stocks. Compared with the past, the foundation of this round is more solid. From the perspective of the style cycle, micro-cap stocks** may still be worth paying attention to in the short term, but it must be kept in mind that the market capitalization factor is a style factor, not an alpha factor, and we must always be vigilant against the risk of style reversal. From the perspective of subdivisions, there are still opportunities for marginal improvement in fundamentals and relatively underestimated, such as TMT, consumption, medicine, etc. In addition, some managers believe that the trend of small and micro caps is easily driven by emotions and transactions, the market effectiveness is relatively weak, the liquidity is poor, and the capacity is small, therefore, the size of the position of micro cap stocks cannot be very large, and it must be very diversified, which is more suitable for quantitative strategies for investment. Fund inflows + revaluation drive small caps**China ** reporter: Since the beginning of this year, what is the main logic of the continuous bullish trend of micro-cap stocks?Wang Huaixun:On the one hand, domestic and foreign institutional investors have generally seen capital outflows this year, and the large market capitalization and high prosperity of institutional heavy positions have been under heavy selling pressure, and funds have begun to flow to small market capitalization to hedge against risksOn the other hand, the small market capitalization, in 2016-2020, the value of shell resources has depreciated sharply, and the valuation has fallen significantly. The combination of these two forces has led to a strong performance of small caps this year, especially for micro-cap stocks. Dong Shanqing:In the long run, small-cap stocks have always had higher alpha than ** stocks, and it has a higher growth potential than ** stocks. If we look at the trend of the Wind Mao Index and the Wind Micro Cap Index, which represent the industry leaders, there was a cross between the two in 2021, and since February 2021, micro cap stocks have continued to be bullish, while the Mao Index has continued to weaken. Based on the 5 to 7 year time rotation of the over- and small-cap style, micro-cap stocks should still be bullish for a while. Qiao Peitao:There are three main reasons behind the bullish trend of micro-cap stocks, one is fundamentally, it is currently a stage of weak macroeconomy, and it is difficult for the performance of ** stocks to have a good performance at this stage, historically the difference in the market value style of large and small caps is highly correlated with the difference in profitability between the two, and the profitability ratio of ** stocks in the current stage has no obvious advantage over micro-cap stocks, so small caps and even micro-cap stocks are easy to prevail. Second, on the capital side, the stage when institutional funds become the main incremental funds is often dominated by first-class stocks, and the stage when non-institutional funds such as quantitative and floating funds become the main incremental funds are often dominated by small-cap stocks. Third, at the industrial level, it is currently the embryonic period of new technologies, AI+, satellite Internet, autonomous driving and other new technologies are emerging in an endless stream, and small and micro disk companies are making a small U-turn, making it easier to keep up with the new trends of the industry, so it is easier to take advantage. Huang Zhigang:First, the core logic of the bullish trend of micro-cap stocks is "shell value". As the best financing carrier, listed companies have a relatively stable pricing center for shell resources in the context of a very low delisting rate, thus forming a margin of safety in market valueThe second is that the compilation rules of micro-cap stocks form a natural and perfect combination with the bottom line of the shell value of micro-cap stocks, creating a large number of trading alpha by buying low and selling high every day. Jindalee:It is mainly driven by the capital level, and the current lack of incremental funds from institutional investors such as foreign capital and public offerings are all constrained by weak domestic economic expectations. Micro-cap stocks tend to have a small market capitalization, generally less than 3 billion market capitalization, this kind of ** is often not favored by foreign capital and public offerings**, institutional investors are often due to the large amount of funds, **small market capitalization** may have the problem of research input and output asymmetry, but the small scale of flexible funds can participate through high-frequency trading. In the past year, this type of money led by trading strategies has also made good gains, so there are incremental chips to continuously strengthen the stock price movement of micro-cap stocks. This round of small-capitalization style** has a more solid foundation
China ** reporter: Based on the past, what is the difference between the small-capitalization style in 2023 and the past?Wang Huaixun:From 2009 to 2015, the market was also in the small market capitalization style, especially in 2014 as a whole, the small market capitalization performance was outstanding, but the main logic was brought by the value of shell resources, with the time of mergers and acquisitions and restructuring to perform, at the same time, the small market capitalization style also showed a strong correlation with market liquidity, which shows that this round of small market capitalization style has strong capital and emotional driving factors behind it, and the foundation is not solid. In contrast, this year's small-cap style has the logic of a reasonable revaluation of the value of small-cap capitalization, although there is also an element of capital flow, but in comparison, the foundation is more solid than that of the past round. Dong Shanqing:From 2006 to 2007, the first was mainly in traditional cyclical industries such as real estate, finance, and exports, and in 2014-2015, it was mainly mobile Internet business model innovation. The recent wave of AI is more like the Internet in 1999-2001, and there have been major changes in the way humans interact with each other. Qiao Peitao:This year's small-cap style has both similarities and differences compared to the past. The similarity lies in the fact that they are prone to flashpoints in the field of new technologies, whether the company is really a business transformation or just stained with various concepts, starting in the theme, in the haze, in the enthusiasm, and finally waiting for the fundamentals to be verified. The difference is that the market value of this round of small and micro cap stocks is more sinking, the smaller the more elastic, and the theme rotation is faster, coming and going like the wind, which is not easy to grasp. Huang Zhigang:The small-capitalization style in 2015 and 2021** was more driven by the explosion of emerging industries such as mobile Internet and new energy. This year's small market capitalization ** is more biased towards AI and other concepts. Jindalee:The small-capitalization style in 2023 is more of a thematic investment, with stock prices showing violent fluctuations under industrial concepts such as AI and data elements, while the industrial stage is actually still in the embryonic period of "0-1", and cannot be cashed into the earnings statements of small-capitalization companies. During the period from 2020 to 2022, with the concentrated outbreak of new energy vehicles and photovoltaic industries, with the transmission of the new energy industry chain to the upstream, midstream and downstream, the stock price performance of many related small-capitalization companies has the performance support of profit improvement, and it is not a simple theme investment. Short-term style or sustainableAlways be vigilant against the risk of reversalChina ** reporter: At this point in time, the sustainability of micro-cap stocks has attracted much attention. What do you think about this?Will micro-cap stocks continue their strong performance next year?What are the opportunities and risks?Wang Huaixun:At present, the outflow trend of institutional heavy stocks has not seen any signs of ending, and micro-cap stocks are still worth paying attention to in the short term, but we must keep in mind that the market capitalization factor is a style factor, not an alpha factor, and the accuracy of people's subjective judgment of market capitalization style is low, and we must always be vigilant against the risk of style reversal. Qiao Peitao:As mentioned above, the rise of the style of micro-cap stocks, behind the support of its internal factors, so it depends on its continuity, focusing on whether the above three factors will be reversed, first of all, next year's economic recovery is a high probability thing, but everyone generally expects that the strength of the recovery is not strong, still showing a moderate recovery trend, and it is difficult to reverse the performance trend. Second, at the level of funds, at present, there are still no signs of large-scale incremental funds in the funds of public offerings, northbound and other institutions, and it is difficult to issue or even continue to redeem, and the floating capital side has made money one after another. Third, new technologies are still in a state of continuous germination, and in the field of new technologies, we have not yet seen the pattern of those leading leaders dominating the world. To sum up the above factors, there is a high probability that the small- and medium-cap style will continue next year. The risk lies in the fact that when a trend was sought after by the market in the past, it was easy to overheat the transaction, and it would show a phased style, as long as we grasped this internal factor, we could be aware of the ups and downs of this style in the future. Huang Zhigang:As an extreme small-cap style, micro-cap stocks are cyclical, and the duration of the style is difficult to judge, but this continuous ** also means the accumulation of risks, once a negative feedback is formed, the low liquidity of micro-cap stocks will further exacerbate this risk. The risk trigger point may be a change in the market, leading to a repricing of the listed company's shell resources. Dong Shanqing:Based on the 5 to 7 year time rotation of the over- and small-cap style, micro-cap stocks should still be bullish for a while. Try not to participate in the early rise is too large, the chips are too crowded**. China ** reporter: What is the overall valuation, fundamentals and liquidity of micro-cap stocks?Which segments still have good opportunities?Dong Shanqing:At present, the overall valuation of micro-cap stocks is above the mean, but there is no very large bubble, and the fundamentals reflect a kind of expectation of a future economic upturn. Liquidity is average, which is not conducive to the participation of large funds. In terms of subdivisions, there are still good opportunities in TMT, consumer, pharmaceutical and other industries. Huang Zhigang:Micro-cap stocks as a whole are overvalued, fundamentally skewed, and illiquid. There is an opportunity for marginal improvement in fundamentals and relative undervaluation. Qiao Peitao:Micro-cap stocks are overvalued overall, with relatively poor fundamentals. The reason why it has become a micro-cap stock is often the reason for its own weak competitiveness, although there is a new technology trend, but in general, the advantage is not prominent, in addition to the relative strength of micro-cap stocks in the past two years, its valuation has also gone from relatively cheap to a relatively expensive stage. Micro-cap stocks are less liquid, and it is difficult for large institutional funds to participate. From the perspective of subdivisions, in new technology-related fields, such as TMT, medicine, machinery, etc., micro-cap stocks tend to perform well. Small market caps are simply the result of value pickingIt is not the starting point for stock pickingChina ** reporter: As a public offering ** manager, how do you view the micro-cap stock strategy of using "small market capitalization** + equal weight" to build a portfolio?Huang Zhigang:In the long run, investing is all about value and valuation, not market capitalization. Small market caps are only the result of value stock picking, not the starting point for stock selection. Wang Huaixun:This method can be regarded as a kind of smart, and its essence is purely relying on the small market capitalization style, earning beta, not alpha. This strategy may perform better when it conforms to the market style, but the reason why beta is called beta is because its returns are volatile in the long run, and the market will reverse. Investors who are bullish on this style can use it as a tool, but they should not mistake their beta returns for alpha returns called strategies. Dong Shanqing:So far, this strategy has achieved very good results and is likely to continue. But be wary of the possibility that any strategy will fail when it reaches its peak. Qiao Peitao:First of all, I did not take the initiative to expose the market value style in the investment process, that is to say, I did not deliberately choose the large and small cap style in the stock selection stage, or to select stocks from the perspective of fundamentals and valuation, secondly, from the past history, small and medium-cap stocks are relatively more elastic, the probability of a 5 billion market value company **5 times is much greater than the probability of a 50 billion market value company**5 times, the big rise of large market value companies often needs industry outbreaks, and the probability is relatively small. For the micro-cap strategy constructed by small market capitalization**+ equal weighting, I think this strategy is more suitable for quantitative funds, and active equity investors are difficult to track the performance of micro-cap stocks, and they will be relatively confused. Micro-cap stocks are suitable for quantitative investment
China ** reporter: From an investment perspective, what are the significant differences between micro-cap stock research and investment and large- and mid-cap stock investment?What are the main challenges or difficulties for investing in micro-cap stocks?Qiao Peitao:Micro-cap stock research and investment are more from the perspective of funds, disks, themes, liquidity, etc., and large- and medium-cap investment is more from the perspective of industry trends, competitive advantages, valuation, etc., and the starting point to be considered from the investment is quite different, a bit of a feeling of south fist and north legs, so the change of investment ideas or focus should be the biggest challenge, in addition, micro-cap stocks are generally less liquid, and it is difficult to accommodate the entry and exit of large amounts of funds, and active equity investors can invest in micro-cap stocks may not have good returns. From the perspective of the short cycle, micro-cap stocks have already shown signs of a phased bubble, and we need to be wary of the follow-up style**. Wang Huaixun:1) The stock price of large- and mid-cap** has a strong correlation with fundamentals and stronger market efficiency, which is suitable for stock selection with fundamental-related strategiesThe trend of small and micro caps is easily driven by emotions and transactions, and the market efficiency is relatively weak, which is suitable for stock selection with volume-price-related characteristics2) Micro-cap stocks have poor liquidity and very small capacity, so the size of the micro-cap stocks held cannot be very large, and must be very dispersed, which also leads to the difficulty of covering so many people, so stock selection can be carried out with the help of quantitative or quantitative means. To sum up, microdisk is more suitable for quantitative strategy investment based on volume and price factors, so as to solve most of the above pain points. However, even so, there are still great challenges in the control of transaction costs, because the transaction turnover rate of micro-cap investment strategies is usually large, otherwise it is difficult to keep up with the overall trend of micro-cap stocks, and the liquidity of micro-cap stocks is poor, and the impact cost is very high. Dong Shanqing:For fundamental investors, micro-cap stock research needs to be more diligent, and you have to go to research often, to rummage through every stone, a bit like Peter. Lynch's investment approach. For quantitative investors, they need to adjust their model parameters regularly to keep their strategies effective. Compared to large- and mid-cap stocks, micro-cap stock research should often consider selling. For example, many** may be due to liquidity driving up valuations, and whether their true performance can meet expectations is uncertain, reflecting more optimism about the future than a reality that can actually be achieved. Therefore, when tracking micro-cap stocks, if the performance does not meet expectations, or if the short-term gains are too large and deviate from the value, you must sell them quickly. Huang Zhigang:We didn't deliberately look at micro-cap investment strategies. Jindalee:Micro-cap companies are small, from the perspective of value investment, it may be difficult to accurately grasp their development trends, and their growth process is easily affected by unexpected factors, the risk resistance is relatively weak, and the large changes in their earnings will also increase the difficulty of research, tracking, investment and holding. In contrast, the operation and management model of large and medium-sized companies is more mature, and the technology, scale advantage and future development of the enterprise are stronger, so it is relatively easier to make a value assessment in the process of investment. China ** reporter: Do you have any advice for individual investors to invest in micro-cap stocks?Wang Huaixun:In the current **, if investors also believe that the probability of the small-capitalization style continuing is high, they can pay attention to some small-capitalization directions under the premise of appropriate risk tolerance. Small-capitalization Beta also has an alpha partner, which is a quantitative investment based on high-frequency volume and price factors, which is very suitable for mining alpha returns in small-capitalization**. Dong Shanqing:For individual investors, direct investment in micro-cap stocks is risky and may face the risk of delisting, so it is recommended that you choose a micro-cap stock style. Huang Zhigang:Wait for the market to form a new pricing center for the shell resources of listed companies, and trade according to the compilation rules of micro-cap stocks. Qiao Peitao:First, investment is a long-term process, to look at the return on investment from a long-term perspective, there are many times a year, but it is very rare for investors with an annualized return of more than 20% in ten years. The second is to actively embrace, the most lasting in this market is constant change, this change also includes style changes, if from the perspective of the medium cycle, it is now the market style of small and medium-sized caps, then there is no need to stick to the growth of the market, may continue to underperform the market. The third is which investment style to take, but also to follow their own inner choice, to see which style is more suitable for their own character, investment philosophy is not high and low, white cat black cat can catch mice is a good cat, but if you see others make money and blindly follow the wind, it is difficult to obtain better investment returns in the end. Jindalee:Since the investment strategy of micro-cap stocks is more thematic and trading, from the perspective of investors, individual investors need to reflect comparative advantages in these two aspects, and individual investors who are sensitive to market information, good at trading, and experienced may have more investment advantages, while it may be more difficult for the new generation of investors who have just entered the market to earn income. Edit: Captain's Review: Muyu.