Trends, Herding, and Frenzy—The "Main Line Grabbing" Investment Methodology in A-shares
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In the A-share market, "grasping the main line" is the core proposition for investment success, but confusion and misuse of methodologies often leave investors with nothing amidst bustling market activity.
On May 7, the strategy team at Guotou Securities released a research report, systematically explaining how to identify, track, and seize the periodic main lines of A-shares using two major tools: incremental funds and style switching.
The report points out that about 60% of the time the main line is clear in A-shares each year, while 40% are in a state with no definite main line. The investor's goal is not "catch everything," but "not missing out on the big feast, not blindly chasing trends."
Moreover, incremental funds determine the direction of the main line, style switching requires cross-verification of trading signals and logical signals, and any group clustering will eventually disintegrate. Identifying the rhythm of disintegration is key to achieving excess returns.
Methodological Outline: Four Key Tools, Avoid Combining
In practical terms, the research team distilled the tools for grasping the main line to four: macro narrative, industrial trend, incremental funds, and style switching.
Investors need to select one or two of these tools based on the main contradiction at the current market stage, their expertise, and investment preferences. Never mix all four, otherwise "a tangled mess, and the main line becomes unclear."
The report measures these four tools from two dimensions:
Pricing Persistence & Effectiveness: Macro narrative > Industrial trend > Incremental funds > Style switchingPractical Identification Difficulty: Incremental funds is the hardest > Macro narrative > Style switching > Industrial trend
The report particularly notes that profound changes are occurring in the correlation and causality among the four tools.
With the rise of AI, macro narrative and industrial trend now resonate, "if you can't see through AI, it's difficult to craft a good macro narrative."
Meanwhile, the rise of passive investment, rapid development of quantitative private equity, and sustained inflow of long-term capital (represented by insurance) are profoundly reshaping the stock market ecology. Incremental funds and style switching are gradually becoming causally intertwined.
Incremental Funds Perspective: "Every trend is a cluster"
From the perspective of incremental funds, the core logic is summarized in one sentence: "Every trend is a cluster."
Market pricing is determined by marginal traders. This is the logical starting point to understand how incremental funds form the main line. Each major trend in history has been driven by special clusters of incremental funds:
2017-2021: Foreign capital continuously poured into A-shares, shaping a high-ROE, high free cash flow style preference and birthing the "Mao Index;" later, mutual funds rapidly expanded and became the dominant force, swiftly shifting pricing to targets like Contemporary Amperex, forming the "large-cap growth" main line structure;
2021-2023: Quantitative private equity entered a stage of rapid development, indirectly or directly driving a two-and-a-half-year uptrend in the Wind Micro Cap Stock Index;
2023-2025: Insurance funds and ETF products rise as major variables. The bank sector's performance doesn't correlate highly with CSI Dividend Index, but matches the pace of Shanghai-Shenzhen 300 ETF subscriptions—this is the main line pushed by the "rise of passive longs," not just a high dividend logic; the high dividend style is mostly a pricing main line naturally formed as insurance funds increase their equity allocation.
For quantitative portrayal of clustering, the report builds a tracking framework using three elements: excess returns, holdings divergence (valuation divergence index), and incremental funds, summarizing general rules through multiple historical review cycles:
In every cycle of funds clustering, excess returns always peak and retreat first, followed by the valuation divergence index, and finally incremental funds peak.
Take the classic "Mao Index" market for example: In Q4 2020, mutual funds' excess returns peaked and started to fall; then the valuation divergence index peaked; incremental funds (mutual fund issuance volume) peaked and fell last.
This sequence is validated in several clustering cycles from 2005-2007, 2012-2014, 2016-2017, etc. For investors, the logic for timing sales is thus clear:
Excess returns peak first (Sell A): Optional to sell, individual investors may consider reducing positions early;Valuation divergence peaks: Sector divergence hits a historical high, necessity for "high-to-low" operations rises significantly;All three confirm peak and retreat (Sell B): The main line is highly likely to have ended, usually near the second sell point of the M-top, must sell.
Notably, the report stresses that incremental funds' rules are mostly retrospective.
Purely market-driven funds are hard to anticipate, but if incremental funds stem from system mechanism design—like the launch of Shanghai-Hong Kong Stock Connect, increased insurance equity allocations, or regulatory encouragement for ETF development—forward-looking deployment can be relatively accurate.
Take the case of moving resident deposits: The report notes that discussion has heated up since September 2024, but actual progress is unsmooth. The core reason is "lack of system mechanism design;" without a mechanism like an OCI account channel, this can only be a retrospective signal.
Three-Factor Framework to Identify Leading Funds Preferences
From the incremental funds perspective, different market environments correspond to different dominant funds, each with distinctly different aesthetics and preferences.
The report constructs a "three-factor A-share investment strategy cycle framework based on high-growth segment—liquidity—supply side optimization," summarizing the subjective long investing philosophy into three core paradigms:
High-growth segments exceed 50%: Prosperity investing is most effective (example: 2021 new energy market);
High-growth segments between 25%-50%: Core asset investing is more effective, buy industry leaders (example: 2016-2017 consumption upgrade);
High-growth segments below 25%: Industry theme investing is most effective, fundamental analysis fails (current AI market is a typical example).
Among them, high-growth segments are defined as industries within CITIC Level 3 whose profit growth exceeds 30%.
The key insight of this framework is that: styles rotate, most investors only achieve outstanding excess returns during periods when their investment philosophy matches market style; no investment strategy always works.
Style Switching to Grasp Main Line: Watch Trading Signals, Cross-Verify with Logical Signals
In the style switching dimension, the report first emphasizes that "distinguishing illusion from reality is the first priority."
Many style switching studies in the market have two issues: First, some charts show correlations and causality that have long ceased to be effective, but are still being updated; Second, using different index compilation methods can yield completely different charts, leading to "technical packaging."
The report says that such research should be as little as possible, and picking a few relationships with stable correlation and causal explanatory power is far more practical than piling up ambiguous charts.
The report classifies style switching for main line into three methods.
First: Normalized tracking. For example, PPI trends and tech/cyclical relative performance—PPI has effectively guided the rotation between tech and cyclical sectors in recent years.
The report judges that within the short-term style dimension of a quarter to half a year, "new and old dance together" between tech and cyclical is clear, with PPI rebound as the root guide.
Second: Reflexive reaction to sudden events. The core signal is "position imbalance + macro upheaval" occurring together and resonating.
Switching from "Mao Index" to "Ning Group" in 2021, and from "Ning Group" to high-dividend coal in 2022, are typical cases. The report especially notes that position imbalance alone doesn't necessarily trigger a style reversal—the Mao Index positions can keep climbing even in imbalance.
Similarly, a macro upheaval without corresponding position imbalance usually results only in temporary "high-to-low" adjustment, with the original main line likely to return. As with the 2025 reciprocal tariff landing, the market had a one-day drop then quickly V-reversed, because sector positions weren't seriously imbalanced.
Third: Main line identification in specific environments. The report takes the "anti-barbell" strategy as a case example. The team first proposed in 2025 that the effectiveness of the traditional barbell strategy (high dividend + small-cap growth) may be declining.
When the 10-year government bond yield drops sharply, pessimistic expectations drive funds to allocate to both ends, forming a typical barbell structure; but when yields enter a fluctuating range and stop falling, pessimism about the mid-term economy eases, funds gradually flow from both ends to middle assets (ChiNext Index, A500, CSI 500, etc., large-cap growth assets), establishing the "anti-barbell" logic.
For shorter-term industry rotation, the team developed an "A-share high-to-low index," calculated as variance of cumulative returns across secondary industries:
- High index (near 60): Switch from high-performing sectors to low-performing ones for excess return;
- Low index (near 30): Sector gains are similar, a brewing phase for a new main line, actively seek new direction.
Historical data shows the high-to-low pattern emerges about 2-3 times per year in A-shares, each cycle lasts about 2-3 months. "Exiting at highs is the core of industry rotation."
Risk Warning and DisclaimerThe market is risky, investment requires caution. This article does not constitute personal investment advice, nor does it take into account individual users' special investment objectives, financial circumstances or needs. Users should consider whether any opinions, viewpoints or conclusions herein are suitable for their specific situation. Investments based on this are at your own risk. ```