Zhike | Which is the Strongest Among CSI A500?
Author | Fan Liang
Editor | Ding Mao
On September 23, the CSI Index Company officially released the CSI A500 Index.
On October 15, after the fundraising of 10 CSI A500 ETFs was completed, they were officially listed and traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, with an initial offering size of 20 billion yuan, and expanded to more than 47 billion yuan on October 28.
In addition, on October 25, 20 public offering funds initiated the subscription of off-market funds such as CSI A500 ETF Link, CSI A500 Index, and CSI A500 Index Enhancement. Among them, Taikang and Boshi ended the fundraising early. It is expected that after the fundraising of off-market funds is completed, it can bring tens of billions of incremental funds to the A500 Index.
After entering November, 12 fund companies including Tianhong, GF, and ChinaAMC have quickly obtained approval for their on-market CSI A500 ETFs, and they have successively entered the issuance and subscription stage since November 5, with the total issuance size expected to exceed 20 billion yuan.
So, what exactly is the CSI A500 Index? And how should investors choose from the plethora of fund products?
What are the characteristics of the CSI A500 Index?
An index, simply put, is a basket of stock portfolios compiled by financial institutions or stock exchanges according to specific weights and statistical methods, used as a reference indicator to reflect changes in the stock market. And an index fund is a stock portfolio that simulates the composition and proportion of the corresponding index constituents.
Simply put, the Shanghai Composite Index that we often mention is compiled by all listed companies on the Shanghai Stock Exchange according to a certain weight; the CSI 300 is composed of the 300 companies with the largest market capitalization in the Shanghai and Shenzhen stock markets; the CSI 500 is composed of 500 companies with the 301st to 800th largest market capitalization in the Shanghai and Shenzhen stock markets.
Then, according to which dimension is the CSI A500 Index compiled?
According to the compilation plan announced by the CSI Company: The CSI A500 Index selects 500 securities with larger market capitalization and better liquidity from various industries as the index samples to reflect the overall performance of the most representative listed company securities in various industries.
Specifically, the stock selection methods mainly have the following characteristics:
1. Exclude listed company securities with CSI ESG evaluation results at C or below.
2. The market capitalization ranks within the top 1500 in the Shanghai and Shenzhen stock markets.
3. Preferentially select the stocks with the largest market capitalization in the CSI tertiary industry.
4. Within the Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect securities range.
Compared with the CSI 300 in terms of composition, in terms of the composition of heavyweight stocks alone, the top 20 heavyweight stocks of the CSI A500 and the CSI 300 are basically the same. However, from a broader industry composition perspective, the CSI A500 is still quite different from the CSI 300.
Figure: Weight Composition of CSI A500 and CSI 300 Source: Official Website of CSI Index Company, Wind, 36Kr Collation
Based on the Wind primary industry, the top five weight industries in the CSI A500 are Information Technology (19.2%), Industry (18.9%), Finance (14.3%), Materials (11.9%), and Optional Consumption (9.5%), accounting for 73.8% in total; while the top five industry weights of the CSI 300 are Finance (23.4%), Industry (17%), Information Technology (16.6%), Daily Consumption (11.3%), and Materials (7.9%), accounting for 76.2% in total.
That is to say, compared with the CSI 300, the overall industry distribution of the CSI A500 is more balanced, and the proportions of the Information Technology, Industry, and Materials industries are higher, while the proportion of Finance has decreased significantly, which is closer to the concept of the new-quality productive forces favored by the current market.
Figure: Industry Weight Proportion of the CSI A500 Index Source: Official Website of CSI Index Company, Wind, 36Kr Collation
If compared with the CSI All Share Index, its top five industries are Information Technology (19.7%), Industry (19.3%), Finance (14.1%), Materials (12.2%), and Optional Consumption (9.7%). It can be seen that the industry composition of the CSI All Share Index and the CSI A500 is highly similar, and the CSI A500 can better reflect the performance of the entire A-share market.
Therefore, for investors who want to "buy in one go" the leading stocks in various industries in the entire A-share market, the CSI A500 is the best choice at present.
How to select A500 Index Funds?
For investors who want to share the earnings of the CSI A500 Index, the currently available fund products in the market include CSI A500 ETF, CSI A500 ETF Link, CSI A500 Index Fund, and CSI A500 Index Enhancement Fund.
Then, what are the differences between these products and how should they be selected?
The CSI A500 ETF is an on-market fund with good liquidity. After investors open a stock account or a fund account, they can trade the ETF in real time. As an on-market fund, the price of the ETF will fluctuate in real time due to the influence of the supply and demand relationship of the fund itself, so it may be discounted or premium relative to the index. When investors buy and sell this ETF, the fund company will charge management fees, custody fees, and other transaction fees, and the securities company will charge transaction commissions.
The CSI A500 ETF Link is an off-market fund that can be purchased without opening an account, but the off-market fund does not have a real-time price, only the daily closing net value. Generally, for funds bought and sold before 3 pm on the same day, the net value is calculated based on the closing price of the same day, and for funds bought after 3 pm, the net value is calculated based on the closing price of the next trading day. In terms of capital allocation, after investors buy the ETF Link Fund, the fund company will use 90%-95% of the funds to buy the ETF in the on-market, and 5%-10% of the funds will be retained as demand deposits, playing the role of an "intermediary".
In addition , the ETF Link Fund is mainly divided into two major categories, A and C, Category A generally charges subscription and purchase fees, but does not charge a sales service fee; Category C generally does not charge subscription and purchase fees, but charges a sales service fee. Category A is suitable for long-term holdings, and Category C is suitable for short-term holdings.
The CSI A500 Index Fund is also an off-market fund, which can also be purchased without opening an account and cannot be traded in real time. It also has the distinction of Category A and Category C. Different from the ETF Link Fund, the fund company does not build the position of the CSI A500 Index, but will directly use the corresponding funds to buy stocks to simulate the portfolio of the CSI A500 Index.
The CSI A500 Index Enhancement Fund means that the fund company will use most of the funds to buy a stock portfolio to simulate the composition of the CSI A500 Index, and a small portion of the funds will be used for the investment of other assets or stocks.
After understanding the differences between several types of funds, before sharing the earnings of the CSI A500 Index, investors first need to consider their preference for liquidity to determine whether to conduct on-market transactions. Then, for the selected similar fund products, they need to consider whether the fee rate is reasonable.
Figure: Characteristics of Various Fund Products Source: 36Kr Collation
1. For on-market ETFs, the fund rates of each fund are the same, and it is preferable to select products with high liquidity.
The 10 CSI A500 ETFs traded on the market were listed and traded on the same day. Under the highly competitive situation, the products of the 10 fund companies only charge management fees and custody fees, and do not charge subscription and redemption fees. At the same time, the management fees and custody fees of the 10 funds are at the lowest level in the ETF market.
Therefore, under the same handling fee rate, investors should prefer ETFs with higher liquidity to facilitate buying/selling operations. Currently, in terms of trading volume (similar to the number of shares), the two ETFs with the highest liquidity are Guotai CSI A500 ETF and Invesco Great Wall CSI A500 ETF.
Figure: Information List of CSI A500 ETF Products (as of 10.29) Source: Wind, 36Kr Collation
For the new on-market CSI A500 ETFs issued since November 5, considering that the subscription of related products requires the payment of subscription fees, and that the ETF fund issuance stage is generally dominated by market makers, for investors who want to invest in on-market ETFs, it is more appropriate to directly purchase the ETFs that are already in trading.
2. For ETF Link Category A funds, it is preferable to select products with low subscription rates, and the holding period should be at least more than 7 days.
The currently available CSI A500 ETF Link Category A funds, the fund company will charge subscription, purchase, and redemption fees in addition to the management fees and custody fees. Buying a fund during the fund issuance stage is called subscription, and buying a fund after the issuance is completed is called purchase. At present, except for Taikang, other fund companies are in the subscription stage.
Among them, the management fees and custody fees of each fund company are the same, consistent with the CSI A500 ETF, and the differences mainly lie in the subscription, purchase, and redemption rates.
For the subscription, purchase, and redemption rates, fund companies often adopt a stepped charging method. For example, the subscription and purchase rates are differentiated according to the purchase amount, and the redemption rate is divided according to the holding period.
In terms of the redemption rate, If the holding time is within 7 days, each fund company will charge a 1.5% redemption fee, and the cost of short-term redemption is very high. However, if the holding time is more than 7 days, most funds will not charge a redemption fee.
In terms of subscription and purchase, Huatai-PineBridge has the lowest subscription and purchase rates, when the subscription and purchase amount is less than 500,000 yuan, the corresponding rates are 0.5% and 0.6% respectively. When the subscription and purchase amount is between 500,000 and 1 million yuan, the corresponding rates are 0.2% and 0.3% respectively.
Of course, If the subscription and purchase amount exceeds 1 million yuan or even higher, the rate will be further reduced. For example, many funds set that a single transaction amount exceeding 5 million yuan will only charge a fixed amount of 1,000 yuan for the subscription and purchase fee, etc.
Figure: Comparison of A500 ETF Link A Rates Source: Wind, 36Kr Collation
3. For ETF Link Category C funds, it is preferable to select products with low service rates. For non-large amounts or non-very-long-term holdings, the charges are lower than Category A.
Category C funds do not charge subscription and purchase fees, but charge service fees. The other fee structures are the same as Category A. Currently, Huatai-PineBridge also has the lowest service rate, at 0.15%, and the service rate of other public offering fund A500 products is 0.2%. Of course, Category C fund products also need to be held for more than 7 days, otherwise, they will face a higher redemption rate.
Regarding the choice between Category A and Category C funds, the main point is to compare which is lower between the subscription and purchase rates and the cumulative service rate.
Taking the China Merchants CSI A500 fund product as an example, under the condition that the net value of the fund remains unchanged, Category A funds charge a one-time 0.8% subscription fee when subscribing, while Category C funds charge a 0.2% service rate annually. The cumulative rate of Category C funds for four years is 0.8%, which is close to the subscription rate of Category A funds at this time. Therefore, unless the investor intends to hold the fund for more than 4 years, it is more cost-effective to purchase Category C funds.
Of course, if the investor's purchase amount is extremely high, with a single subscription exceeding 5 million yuan, and under the condition that the net value remains unchanged, the service fee for Category C funds held for one year exceeds 1,000 yuan, while the subscription fee for Category A funds is only 1,000 yuan for the entire holding period. At this time, Category A funds are more cost-effective.