Why Has It Attracted Over 12.5 Billion?

The year is drawing to a close, and as of November, the trend in exchange-traded funds (ETFs) shows a continuing rise in scale, signifying an increasing number of investors gravitating toward these financial instruments. According to data from Wind, the total size of all listed ETFs in China has reached an impressive 3.65 trillion yuan, marking an increase of 1.6 trillion yuan since the beginning of the year. Moreover, the number of ETFs has surpassed the 1,000 mark, now standing at 1,021—an increase of 144 from the beginning of 2023. Notably, equity ETFs have seen a net inflow exceeding 1 trillion yuan during the year, with the total number of stock ETFs reaching 822. This influx of capital into the stock market via index funds has firmly established itself as a growing trend.

As of the third quarter, passive investment funds in China have surpassed their active counterparts in size for the first time, suggesting a significant shift in investment strategies among institutional investors. The total scale of passive funds has now reached approximately 3.2 trillion yuan compared to 3.0 trillion for active funds. The ratio of passive to active funds has dramatically shifted from 20:80 at the end of 2021 to a current balance of 50:50—highlighting the essential role of ETFs in this transformation.

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This remarkable growth in the ETF market can be attributed to the influence of large institutional investors, including insurance companies, which have driven more than 1 trillion yuan into ETFs in 2023. This momentum has propelled the total scale of ETFs to cross the 3.65 trillion yuan threshold. Specifically, broad-based ETFs hold a substantial market share, accounting for 59% of the entire ETF market with a total size of 2.1 trillion yuan.

November saw the emergence of a new heavyweight in the market: the CSI A500 index, which has become known for its ability to attract significant capital. By November 29, this index had recorded a continuous net capital inflow for 34 consecutive trading days, leading to the proliferation of 10 ETFs surpassing the 10 billion yuan mark. This makes the CSI A500 index the segment with the highest number of large-scale ETFs in the entire market.

The leading CSI A500 ETF (563800) was at the forefront of this surge, obtaining over 12.5 billion yuan in net inflows throughout November, the highest amount recorded across all market offerings. Examining liquidity, the CSI A500 ETF demonstrated impressive metrics, achieving an average daily trading volume exceeding 2.1 billion yuan over a two-week span from November 18 to 29, with a turnover rate exceeding 25%—both figures placing it among the best performers in its category.

Moving along, November saw a net inflow of 114.7 billion yuan for the A500 ETF, reinforcing its status as a market leader in capital attraction. The essential characteristics of ETFs—diversification, flexibility, low costs, transparency, and continuous innovation—are making them a preferred investment tool globally. The domestic market has seen an unprecedented surge in index investing, with ETFs consistently breaking historical records.

As of late September, passive investment funds holding A-shares finally outpaced their actively managed counterparts, marking a historic shift. Institutional investors have consistently increased their holdings in broad-based ETFs, contributing to an astonishing net inflow of capital exceeding 1 trillion yuan into the ETF market this year. The implementation of favorable policies around September 24 was pivotal, leading to a rapid uptick in the A-share market, which in turn solidified the position of broad-based ETFs as market favorites.

The ETF capital flow rankings for November illustrate a strong performance of both equity and cross-border ETFs, with a total net inflow of approximately 56 billion yuan. The CSI A500 ETF became the primary focus of this capital, overtaking the STAR Market 50 ETF to become the second-largest index ETF by market size. Among the top 20 ETFs by net inflow, 14 of them traced the CSI A500 index, collectively drawing 117.4 billion yuan, solidifying its status as a critical source of incremental capital. The lead CSI A500 ETF (563800) achieved over 12.5 billion yuan in net inflows, taking the lead in the entire market.

Industry experts predict that the new generation of core broad-based indexes, represented by the A500, is likely driving a wave of index-based investing in the A-share market. So why is the A500 capturing investor attention?

The CSI A500 index stands as a multifaceted powerhouse. Much like the influential S&P 500 index in the global stock market, it not only focuses on large-cap stocks but also ensures a diverse representation across various sectors, thus guaranteeing broad market representation and balanced industry allocation. The index’s methodology bears many similarities to that of the S&P 500, reflecting a commitment to capturing the overall industry distribution and substantially covering 100% of the secondary industries in China.

In terms of market capitalization, the stocks comprising the CSI A500 index exhibit a wide range, from 6.2 billion to 23 billion yuan, primarily leaning towards large-cap stocks. However, the construction of this index is not solely based on being large-cap; it also prioritizes "specialized and innovative" businesses, encompassing numerous growth-oriented enterprises in niche markets as well as high-tech firms with potential for technological breakthroughs.

According to Wind data, the CSI A500 index includes 234 overlapping stocks with the CSI 300 index and 207 overlaps with the CSI 500 index, featuring an additional 43 stocks from the CSI 1000 index. This extensive range of market capitalization gives the CSI A500 a distinctive positioning that balances large and small-cap stocks more effectively than traditional broad-based indexes.

The historical performances of the CSI A500 index are particularly compelling. Since its establishment on December 31, 2004, the index’s returns over the past decade have often surpassed those of other mainstream broad-based indexes. Historical statistics from Industrial Securities reveal that the CSI A500 has delivered an impressive cumulative return of 388.40% and an annualized return of 8.57%, compared to 6.28%, 7.60%, and 8.07% for the Shaghai 50, CSI 300, and CSI 800 indices over the same period.

This quarter, as the most sought-after broad-based index, the CSI A500 index's associated funds have captured considerable investor interest. In just 35 trading days after the index’s launch, the related index funds reached a remarkable milestone, exceeding the 200 billion yuan mark—an unprecedented speed in achieving such scale in the history of A-shares.

Taking the example of the CSI A500 index fund managed by GF Fund, we see that the CSI A500 ETF (563800) has drawn significant attention since its listing on November 18. Over the past ten trading days, it has chalked up net inflows exceeding 12.5 billion yuan. In terms of recent trading activity, from November 18 to 29, the CSI A500 ETF displayed an average daily trading volume exceeding 2.1 billion yuan with a turnover rate of over 25%—showing a consistent demand in its category.

The CSI A500 ETF's exceptional capital attraction can primarily be attributed to its balanced industry exposure, focusing on both core assets and emerging productivity while catering to investment styles that straddle the line between value and growth. This holds significant appeal for investors in today's rapidly evolving market landscape.

Now, the ongoing debate between growth and value investment styles continues to ignite discussions across the global investment community. This topic never seems to lose its relevance as it periodically reemerges in various forms. Reflecting on the evolution of market preferences this year, we’ve seen that value stocks and high-dividend offerings were placed in the limelight, whereas mid-and small-cap stocks lagged behind in performance. Nevertheless, a reversal of fortunes began in October, culminating in a shift of trend.

This transition came to a head around October 14, when the stark difference in performance became evident. From that date until November 28, the Shanghai 50 index tumbled by 3.61%, while the CSI 1000 index surged by 10.21%. In just 34 trading days, the discrepancy between the performance of small and large-cap stocks widened to 13%. As the markets warmed, growth-oriented broad-based funds began to attract significant capital. The CSI 1000 ETF (560010), Startup Board ETF (159952), and the STAR 50 ETF (588060) have each recorded net inflows of 9.716 billion, 4.312 billion, and 2.334 billion yuan respectively this year.

The CSI 1000 ETF (560010) tracks a collection of 1,000 mid- to small-cap liquid stocks from the A-share market, representing a notable growth style, brimming with specialized and innovative sectors. The Startup Board ETF GF (159952) focuses on the classic Startup Board index, epitomizing the growth orientation of innovative companies. It stands out among 13 similar Startup Board ETFs with consistent net asset growth for eight consecutive quarters, with the number of investors surging to a record 41,637 holders at the end of the first half of the year.

Both the CSI 1000 ETF and the Startup Board ETF boast low management fees of 0.15%, positioning them as some of the most competitively priced offerings among their peers. Additionally, the STAR 50 ETF (588060), which concentrates on sectors such as semiconductor technology, has enjoyed a continuous inflow of net subscriptions for 12 consecutive quarters. The product closely tracks the STAR 50 index while emphasizing companies with ample liquidity and larger market capitalizations within the STAR market, distinguished by significant industry concentration balanced with diversified components.

Ultimately, regardless of whether investors lean towards growth or value investing, there is no definitive answer as to which style is superior. Warren Buffett’s notion of the “circle of competence” highlights that investments should not be made blindly but rather within one’s capacity. This year, despite rotations in market styles, a new trend is emerging: funds are seeking balance amidst market volatility.

Investors are favoring the balance offered by various investment vehicles, including the CSI A500 ETF, which represents a balanced value approach, while also channeling resources into the Startup Board ETF and the STAR 50 ETF—both exemplifying emergent sectors. This quest for equilibrium across growth and value styles represents a new characteristic of A-share investing. Unlike previously concentrated investment focuses, investors are increasingly drawn to diversified strategies that spread risk rather than placing all bets on a singular direction.

As we conclude, it’s worth noting that for many investors, accurately timing market shifts and seizing each trading opportunity remains a rare feat. Spectacularly mastering the art of buying low and selling high can seem like a distant goal. Consequently, as many embark on this journey, they ultimately gravitate toward comprehensive asset allocation strategies.

Research has indicated that approximately 94% of investment returns are derived from broad asset allocation strategies, highlighting the importance of emphasizing asset categories over individual securities. However, as risk appetites and investment goals vary among individuals, so too do the optimal asset allocations suited to each person. As captured eloquently in the narrative of the character Miss Wang from the novel "繁花" (Blossoms), “Everyone has their own dock” elegantly encapsulates a key principle of asset allocation: “Among the myriad of options, what suits you is what matters most.”

Translating this insight onto the realm of fund investment, as macroeconomic conditions and industry landscapes evolve, it becomes imperative to ascertain new anchoring points for asset allocation, enabling one to curate an investment portfolio tailored to individual goals and risk profiles.