The fourth quarter of 2024 sees a continuous increase in global capital markets' focus on core assets in ChinaFor many investors, utilizing a broad-based index ETF to navigate the investment landscape offers a straightforward and effective option, particularly within the A-shares marketRecent data from Wind indicates that the newly launched A500ETF (159339) has experienced a remarkable net inflow for five consecutive trading days from October 22 to October 28, 2024, drawing considerable attention from investorsSo, what about the CSI A500 Index makes it so appealing?

The CSI A500 Index merits serious consideration for several compelling reasonsIt picks 500 securities with large market capitalization and good liquidity across various industries, thus ensuring a well-balanced representation of the marketCollectively, the CSI A500 Index effectively captures the middle and large-cap, as well as sector-leading, high-quality stocksIts distinctive advantages include:

Firstly, the index's construction methodology emphasizes its investment viabilityThe CSI A500 Index selects larger, more liquid stocks across different sectors to represent the most prominent publicly listed companiesIt has adopted innovative compilation rules that prioritize an "industry-neutral" weighting approach, incorporating principles of ESG sustainability and interconnectivity screening criteriaThis multi-faceted approach vividly illustrates the performance of core assets within the context of China's ongoing economic transformation.

Secondly, balanced representation across industries enhances market representationBy employing an industry-neutral compilation strategy, the CSI A500 Index mitigates the impact of scale on industry distribution, thus effectively reflecting structural changes within the A-share marketThe market representation is evident in its market capitalization coverage; as of October 14, 2024, the total market cap of the 500 sample stocks was approximately 54.46 trillion yuan, representing nearly 60% of the total market cap of A-shares

Advertisements

This is accomplished with less than 10% of the constituent stocks in comparison to the total of 5349 stocks in the Wind All A Index.

The industry coverage is more balanced as wellWithin the scope of the Shenwan first, second, and third-level industry dimensions, the CSI A500 Index samples cover 30, 109, and 201 industries, respectively, while the CSI 300 Index covers 28, 81, and 129. Clearly, the CSI A500 Index places greater emphasis on the diversification and balanced distribution of industries, which closely aligns with the overall marketFurthermore, the proportion of emerging industries represented is notably higherBy prioritizing leading companies from various third-level industries, the CSI A500 Index significantly exhibits new driving forces behind economic growthFor instance, as of mid-October 2024, the sectors of electronics, electrical equipment, pharmaceuticals, computers, telecommunications, and defense accounted for 36.76% of the index, compared to 33.19% and 21.24% for the CSI 300 and SSE 50 indices, respectively, indicating a higher coverage level of new productive forces.

The index also integrates small-cap stocks that show growth potential among leading companies within segmented industriesData as of October 14, 2024, indicates that the total market capitalization of the CSI A500 component stocks ranges from 4.349 billion to 23.789 trillion yuan, with an average and median market cap of 108.928 billion yuan and 38.032 billion yuan, respectivelyThis blend of large-cap value characteristics and the growth attributes of industry leaders establishes the CSI A500 Index as a representative for "core assets" in specified sectorsIs it worth focusing on at this moment?

From a valuation perspective, the CSI A500 Index remains positioned within a long-term investment windowAs of October 14, 2024, the index's latest trailing price-to-earnings ratio (TTM) stood at 14.71, reflecting a reasonable midpoint within a historical spectrum that ranges from low to high over the past decade

Advertisements

Moreover, it possesses characteristics of high return on equity (ROE) and robust free cash flow (FCF) associated with its leading stocks.

Examining its profitability further reveals that the CSI A500 Index recorded an ROE of 5.07% in the first half of 2024, a figure that closely approaches that of the high-quality profit-styled CSI 300 Index, significantly surpassing that of the Wind All A indexAdditionally, a look into free cash flow, utilizing the ratio of equity free cash flow (FCFE) to total market cap based on the 2023 annual report, indicates a high free cash flow characteristic comparable to that of the CSI 300.

In light of the current market sentiment revival, the CSI A500 Index stands out for its strong market representation, reasonable valuations, and superior profitability, making it a potentially high-cost-performance investment optionInterested investors may want to consider the A500ETF (159339) along with associated linkage funds (Class A: 022450, Class C: 022451, Class I: 022452). The YinHua Life Bao app offers Class I shares with a low annual sales service fee rate of just 0.1%, alongside additional services by Life Bao!

Moving on to the professional backgrounds of industry experts involved in these fund managements, Ma Jun, who holds a Master's degree, worked as an assistant financial engineer at Dacheng Fund Management Co., Ltd. from July 2008 to March 2009. He joined YinHua Fund Management Co., Ltd. in March 2009, serving as a researcher and fund manager assistantHis previous roles include managing the YinHua CSI Mainland Resource Index Fund and multiple theme-focused equity funds from 2012 to 2024. Under his stewardship, the funds have achieved notable performances amid fluctuating market conditions.

Meanwhile, Tan Yuefeng, a graduate with a Bachelor's degree, began his career in Beijing at the Bank of Communications before joining YinHua Fund in August 2012. He has since held various positions within the Quantitative Investment Department, progressing into a fund manager role

Advertisements

Advertisements

Advertisements