In recent months, the China Securities A500 Index Fund has been the center of attention in the financial world, as it frequently grabs headlines with its notable developments and new offeringsSpecifically, innovative products are emerging on both ends of the spectrum: issuance and filingThe market is awash with options, presenting challenges for investors who seek differentiation amidst a sea of similarity.

Amidst this crowded landscape, Hongde Fund stands out by leveraging the current wave of artificial intelligence (AI) to gain an advantageBy incorporating AI models into their strategies, they aim not only to enhance the performance of their index funds but also to generate superior returnsThe launch of the Hongde China Securities A500 Index Enhanced Fund (fund codes: Class A 023335, Class C 023336) is set for February 17, with the intention of utilizing AI quantitative models to optimize investment strategies while minimizing risks.

Looking forward, Li Zi'ang, the proposed fund manager and head of the Hongde Fund AI Lab, asserts that the current global interest rate reduction cycle and a lenient domestic policy environment make core assets and high-dividend equities especially appealing to investorsThe A500 index encompasses not just core A-share assets, but also takes into account additional filtering criteria such as interconnectivity and environmental, social, and governance (ESG) factors, effectively catering to both domestic and international long-term investment strategies.

Recently, China’s AI sector has witnessed the unveiling of several groundbreaking models, most notably DeepSeek, which has captured global attentionAccording to Li, "The success of DeepSeek not only signifies the rise of Chinese AI technology but also opens up imaginative possibilities for AI's application in everyday life and investment." With predictions suggesting that 2025 might be the year of extensive AI adoption, the technology is gradually intertwining with daily routines.

Reports indicate that, while there are still challenges in the mainstream adoption and commercialization of AI technologies, DeepSeek is poised to create a structural impact on AI capability and application

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Its exceptional reasoning skills, low computational costs, and open-source nature could significantly boost the spread of AI technologies.

Li emphasizes that the arrival of DeepSeek marks a new phase for AI, where large models are no longer the exclusive domain of major tech firms, and the computational barriers are becoming less dauntingMore startups and institutions will have the ability to train their models at a lower cost, facilitating broader access to AI innovations for the general public.

"In the future, there will be a considerable increase in demand for edge-side reasoning, driving faster adoption in application domainsOpen-source models will ignite enthusiasm among developers, hastening technological iterationsLow-cost training technologies will also provide valuable insights for large models in the market," Li stated, suggesting that the first significant overseas impact from a Chinese model symbolizes the beginning of a new competitive era between Chinese and American AI capabilitiesThe engagement of major international and Chinese cloud giants not only validates DeepSeek's technical prowess but also signals profound transformations in AI market landscapes.

Looking at potential applications, the open-source strategy and cost-effectiveness of DeepSeek may facilitate its widespread adoption across a variety of sectors, including gaming, media, healthcare, education, and autonomous drivingFor instance, in content generation, many marketing materials and promotional strategies are increasingly relying on large modelsIn the healthcare sector, large models show potential for applications in medical imaging analysis, disease diagnosis, and drug development, enhancing the efficiency and accuracy of medical servicesFurthermore, in education, the reasoning processes of large models can augment the effectiveness of query resolutions.

The rapid developments surrounding the A500 index have set the stage for deeper integrationsAs additional funds have surfaced, the established scale of A500-related funds has exceeded 380 billion yuan recently

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Amidst this expansion, the Hongde Fund has emerged with innovative approaches, aiming to break away from the homogenized market by capitalizing on the booming field of AI.

In a period where AI innovations are revolutionizing various aspects of life, the investment landscape is not left untouchedAI models deploy a technological framework instead of relying solely on human judgmentThey sift through data to uncover various high-probability events that could yield excess returns, thereby making investment decisions more rational by eliminating the effects of emotional and subjective biasesThis allows the models to rapidly process and analyze an extensive array of high-frequency data, including stock fundamentals, macroeconomic indicators, and trading volume, uncovering non-linear patterns within complex financial markets to seize opportunities for excess returns.

Moreover, AI models can monitor market fluctuations in real-time, quickly detecting trading signals, and dynamically adjusting portfolios based on the latest dataThis adaptive nature equips funds to maintain resilience amid market volatility and address risks effectivelyBy implementing risk controls and portfolio optimizations, AI models ensure diversity and stability in sources of excess returns, enabling funds to perform consistently well across varying market environments.

So, how does AI align with the China Securities A500 Index? According to Hongde Fund, the distinctive advantages of the A500 index provide ample latitude for the application of AI quantitative modelsThe A500 index maintains a large-cap style, balanced sector distribution, and encompasses features of core assets alongside innovative production strengthThis eclectic mix offers a robust reflection of the underlying structural characteristics of A-shares and boasts attributes such as high dividends, strong profitability, exceptional performance, and low volatilityFurthermore, the index is often referred to as the "Chinese version of the S&P 500" and a new barometer for A-shares, giving Hongde Fund the confidence to harness AI's capabilities for accurate risk management and diversified revenue streams in their enhanced index fund offerings.

Since 2020, Hongde Fund has focused on harnessing cutting-edge advancements in AI-related sectors to develop and continuously refine its next-generation quantitative investing system

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By synthesizing the collective expertise of their team, they encompass everything from framework designs and data processing to model training to forge a comprehensive AI-driven quantitative strategy relevant to the Chinese stock market.

The AI quantitative team at Hongde Fund is composed of members with extensive practical experience in domestic quantitative investments and backgrounds from well-known international financial institutionsThis unique combination allows for a seamless integration of local insights with an international outlook, empowering the team to meticulously leverage the advantages of AI models while consistently refining and training their capabilities to ensure the continued efficacy of their alpha strategies.

Li notes that to sustain the effectiveness of alpha strategies, the key lies in rapidly iterating modelsTraditional multi-factor models, which often focus on long-term fundamental factors like growth or valuation, succeed in favorable market conditions when firms' value appreciatesConversely, machine learning models draw upon more timely trading information, capitalizing on mispriced assets through more frequent neural network training, likely yielding greater stability in investment outcomes.

As the head of the AI Lab at Hongde Fund, Li has been investigating the applicability of deep neural networks for some timeHis familiarity with mainstream deep learning models has led him to innovate and iterate models designed for stock selection, emphasizing alpha extractionHe currently oversees five quantitative fund products, including the upcoming Hongde A500 Index Enhanced Fund, which will charge ahead under his directionWith an optimistic outlook on emerging market conditions, Li points out that in the context of ongoing global interest rate reductions and a loosening internal policy environment, core assets, and high-dividend stocks are likely to attract greater attention from investors.

The Hongde Fund sees the A500 Index as not only a financial vehicle but a gateway to integrating cutting-edge technologies, reaffirming its commitment to leveraging AI as part of its operational strategy.

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