ETFs Welcome a Surge of Wealth! Within a week, ETFs have set multiple historical records, with single-day net inflows exceeding 100 billion, a nearly trillion increase in a month, and a total scale of 3.83 trillion, reaching a new high.

Unlike in the past, where investors mainly invested in individual stocks during previous rounds of significant increases, in this round of sudden market surge, investors are participating in the market more through ETFs.

01

Trillions of funds pour into stock ETFs!

Institutional investors are becoming the main buyers of ETFs.

Since September 24th, Chinese assets have started a significant increase, and there has been a historical change in capital inflows: a large amount of funds have poured into ETFs.

So far this year, ETFs have "absorbed" more than a trillion in funds. As of October 11th, the net inflow of funds into stock ETFs this year has reached 1.05 trillion yuan. Among them, the net inflow of funds into the CSI 300 ETF (159919), STAR Market Chip ETF (588200), and the CSI 500 ETF (159922) this year has reached 97.613 billion yuan, 18.195 billion yuan, and 8.991 billion yuan, respectively.

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Recently, the issuance of the important broad-based A500 Index ETF has also brought incremental capital to the market due to the active subscription of funds.Why do funds favor ETFs? The reasons can be traced back to the flexible trading of stock ETFs, transparent holdings, diversified allocation, and their high position, which make them an important investment tool in the market.

In this round of market movements, many seasoned investors have also chosen to participate in the stock market through ETFs, and some of the top ten holders of ETFs are filled with the presence of large institutions.

For example, the much-anticipated CSI A500, looking at the holder data, the top ten holders of ETFs related to the A500 index are filled with big names, including many well-known institutions, such as securities firms, insurance companies, private equity, and public fund dedicated accounts. Taking the A500 Index ETF (159351) as an example, the proportion of institutional holders is as high as 51.93%.

As the first important broad-based index since the issuance of the new "Nine National Articles," the CSI A500 Index has attracted market attention due to its unique advantages. Some industry institutions have referred to the CSI A500 as the "Chinese version of the S&P 500."

02Why is the A500 referred to as the Chinese version of the S&P 500?

For a long time, the S&P 500 index has been seen by the market as a benchmark for U.S. stocks, encompassing 500 outstanding listed companies in the U.S. stock market, which accounts for about 80% of the total market value of U.S. stocks.

Some viewpoints suggest that the A500 index can be considered, to some extent, as the "S&P 500" index of the A-share market. Both formally consist of 500 constituent stocks, and their core concept in compilation methods is also very similar.

In simple terms, the A500 index is a brand-new index that signifies the high-quality development of China's economy, selecting 500 leading companies from various industries as the index samples.

Previous indices were mostly dominated by traditional industries, which made it difficult to reflect the development achievements of emerging industries.

As the high-quality development of China's economy continues to deepen and the industrial structure is further optimized, the proportion of industries related to new quality productive forces in the capital market continues to increase. In order to reflect the overall performance of representative companies in various industries from multiple dimensions, the China Securities Index Co. officially released the CSI A500 index on September 23, 2024.

Once released, the A500 index has been highly valued by the market and is expected to become one of the representative broad-based indices in the Chinese market in the future.

On one hand, the index emphasizes the concept of "industry balance." In terms of industry coverage, the A500 index is balanced towards future industry distribution, with a higher "new content" ratio. The weight ratio representing new quality productive forces is nearly 50%, with industries such as industrial, information technology, communication services, and healthcare accounting for nearly 50% of the total weight. The weight ratio for traditional industries such as finance, energy, and real estate has been significantly reduced. It is evident that the A500 places greater emphasis on national strategic areas.

On the other hand, the compilation method of the A500 index is significantly different from traditional indices and has an international perspective.Specifically, the A500 Index takes into account market capitalization, liquidity, ESG (Environmental, Social, and Governance), and interconnectivity when selecting its constituent stocks, much like the S&P 500 Index, which is one of the international benchmark indices and also selects its components based on similar criteria.

In terms of compilation methods, the S&P 500 emphasizes industry balance. Within the relevant market capitalization range, it compares the weight of each GICS (Global Industry Classification Standard) sector in the index with its weight in the S&P Total Market Index, thereby obtaining a measure.

Therefore, the CSI 500 is also seen by the market as the Chinese version of the S&P 500.

In summary, the CSI A500 Index selects 500 stocks that are representative of each industry's market capitalization and indicative of industry leaders, balancing large market capitalization while evenly covering the core leading assets of various industries in the A-share market.

At the same time, due to its high content of new quality productivity in comparable core broad-based indices, it reflects the changes in the microstructure of the A-share market during the high-quality development process of China's economy and is expected to become a unique identifier for the development of China's modern industrial system.

03

The A500 Index ETF (159351) will be listed tomorrow.

The new "Nine National Articles" propose to establish and cultivate a market ecosystem for long-term investment, improve the basic systems compatible with long-term investment, and construct a policy system that supports "long-term money for long-term investment."

At the same time, it establishes a fast approval channel for Exchange Traded Funds (ETFs) to promote the development of index-based investment.

It is against this backdrop that the China Securities Index Company released the CSI A500 Index, becoming the first core broad-based index released after the new "Nine National Articles."Although China's ETFs have seen leapfrog development in the past two years, they are still in their infancy. In the U.S. market, a large number of investors favor investing in ETF index funds. Since their inception in the United States in 1987, ETFs have quickly won the favor of the global market, with the main reason being their low fees.

For example, the A500 index-related ETFs that have recently attracted market attention adopt a low-fee model. Taking the A500 index ETF (159351) that will be listed tomorrow as an example, the management fee is 0.15% per year + the custody fee is 0.05% per year, which is at a relatively low level in the current stock ETF fees.

At the same time, the A500 index ETF (159351) has set up a quarterly dividend mechanism. On the last trading day of each quarter, the fund's excess return over the benchmark index is evaluated. When the excess return is greater than 0, the fund will distribute profits, with the distribution ratio not less than 60% of the excess return.

Globally, one of the purposes of most broad-based ETFs is to save investors money. The investment method of ETFs has long been very popular in overseas mature markets, and there was a "century bet" that caused a global sensation.

Buffett made a bet with a hedge fund manager many years ago, saying that after 10 years, ETF index funds could outperform these fund managers. At that time, not many people paid attention, and after 10 years, the bet was revealed, and the ETF index fund chosen by Buffett significantly outperformed the hedge fund.

Buffett has repeatedly advised ordinary investors to invest in ETF index funds.

In the investment world, another leader, with his lifetime of wisdom and a 50-year investment career, has pointed out a simple and efficient path for investors. He is John Bogle, known as the "father of index funds."

In 1999, Fortune magazine selected the four great investment giants of the 20th century, and John Bogle was among them, alongside the father of value investing, Graham, the stock god Buffett, and the legendary investment master Peter Lynch.

John Bogle has revealed the secret of his legendary investment career: buy and hold low-cost index funds for a long time.

John Bogle believes that the simplest and most effective way to beat the market is to buy and hold the stocks of all listed companies in a country at the lowest cost, and the best way to hold this market portfolio is to invest in index funds.Last time, I shared a quote from John Bogle that resonated strongly with everyone. Bogle originally said: "Those who consistently hold index funds earn the most not in money, but in time and life—by not frequently trading and buying and selling, and by not fussing every day, you can save a lot of time and energy, and also save a significant amount of transaction fees, allowing you to enjoy life more."

Indeed! In the field of investment, pursuing quick returns and short-term profits is often a high-risk approach. The capital market has always witnessed the prosperity of rising buildings and the sighs accompanying their collapse.

In investing, living long is more important than running fast. May everyone find a suitable mode in investing, step by step, and solidly.