"The 'Oracle of Omaha' Warren Buffett once said: 'Most investors will eventually find that the best way to invest in stocks is to buy index funds with very low management fees.' He also mentioned in his 'Letter to Shareholders' that after his passing, '90% of his estate should be invested in the S&P 500 index fund.' This shows his extreme trust and recommendation for index funds.
Now, the 'China's S&P 500'—the CSI A500 Index—makes a grand entrance, signifying the start of the 'beta upgrade' path for China's broad-based indices. Why is this new top-tier broad-based index so eye-catching? Should ordinary people include it in their portfolio? Let's explore with Xiao Xia.
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China's S&P 500
The CSI A500 Index has become the new 'top-tier' as soon as it was launched, quickly becoming an eye-catching and money-attracting presence in the capital market within just one month. Why is the CSI A500 Index dubbed 'China's S&P 500' right from the start?
Higher Industry Coverage
The constituent stocks of the CSI A500 Index cover all 35 of the CSI second-level industries and 30 out of 31 of the Shenwan first-level industries.
The even and effective industry allocation enhances the breadth and representativeness of the index. The main task of a broad-based index is to be 'broad' and balanced. This industry distribution that closely follows the entire market can effectively avoid over-concentration in a single industry.
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More Leaders in Emerging Industries
The CSI A500 Index is in step with the times. As new productive forces gradually become the strongest voice of the era, the index compilation also includes more leading companies in emerging industries such as power equipment, pharmaceuticals and biology, communications, and computers. It places emphasis on the allocation of growth stocks, ensuring that the growth opportunities and dividends of potential industries are not missed."At the same time, the index maintains a "level playing field" for both value and growth. The weight of the financial industry is significantly lower than that of comparable indices, and the allocation in pan-growth industries such as military, communications, and electronics is relatively balanced, thereby achieving the goal of considering both growth and value industries.
Core assets are strong
Looking at the comparison between market value and profit, the index's constituent stocks, with 10% of the number of constituent stocks and 55% of free float market value, have achieved 63% of the attributable net profit, which shows the high quality of its constituent stocks.
In layman's terms, the CSI A500 Index covers the most blood-making top core assets in the A-share market.
From last year to this year, global capital markets have demonstrated with actual performance that the leading style is the consensus of the current era - whether it is the "Magnificent Seven" in the US stock market, or the Japanese stock market's commercial giants, or the A-share dividend and technology leaders that have been going on for a long time, the ability of core assets to create excess returns is evident.
The CSI A500 Index points to both China's core assets and China's core "new" assets. As the A-share market stabilizes and finds a bottom, high-quality leaders that can represent "Chinese assets" are expected to usher in a revaluation of value.
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A new generation of "broad-based flagships"
For a long time, just as we talk about the "S&P 500" when discussing US stocks, when we talk about A-shares, the most direct association we have is the "CSI 300".As a benchmark for A-shares, the CSI 300 has accompanied the Chinese capital market through nearly two decades since its inception in 2005. Over these twenty years, waves of digital economy and carbon neutrality have come one after another, with the economic momentum gradually "switching tracks," and the A-share market has undergone earth-shaking changes.
Against this backdrop, through changes and optimizations in index compilation, the Zhongzheng A500 Index has gathered leaders from various industries, becoming an index that better fits the current changes in GDP growth structure.
Looking at market value:
Both the CSI 300 and the Zhongzheng A500 are large-cap broad-based indices, covering high-quality stocks from the top of each industry.
However, in the compilation process, the Zhongzheng A500 does not blindly pursue "size" but also takes into account the "little giants" in sub-industries. The market value distribution of the index spans a wide range, covering from 4.5 billion yuan to 2.3 trillion yuan.
It can be said that since its inception, the Zhongzheng A500 Index may have been a "rebalancing of large and small cap styles" on top of a broad-based index.
Looking at the industry distribution:
As we mentioned earlier, the industry distribution of the Zhongzheng A500 is also more balanced and focused on emerging industries.
In contrast, the industry concentration of the CSI 300 is higher, and the proportion of traditional industries is also higher.Examine Profitability Levels
It should be noted that both the CSI 300 and the CSI A500 have return on assets (ROA) that significantly outperform the market average, once again confirming the "blood-making" ability of leading companies.
However, against the backdrop of a slow recovery in fundamentals and an overall decline in the performance of listed companies, the revenue and net profit growth rates of the constituent stocks of the CSI A500 are less affected, with overall profitability levels being better and more resilient.
Examine Individual Stock Selection
In terms of index compilation, the CSI A500 is particularly noteworthy for its introduction of the CSI ESG evaluation and the scope of stocks included in the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, implementing a dual-screening process.
On one hand, in addition to considering market value and liquidity, the index compilation will also take into account ESG (Environmental, Social, and Governance) factors, excluding listed companies with an ESG rating below C, thus safeguarding the quality of the constituent stocks from a more diverse set of perspectives.
On the other hand, it is required that the constituent stocks be part of the Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect securities, meeting the requirements for interconnectivity and free trade. As overseas interest rate cuts begin, foreign capital is still looking for opportunities to replenish investments in China. From this perspective, it will further enhance the attractiveness of this index to foreign investors.
The CSI A500 index, which has stepped out of the singular approach of using total market capitalization as the selection criterion, better reflects the current economic structure and more accurately represents the overall performance of the A-share market.When we once again seek A-share equity assets suitable for a core portfolio in the new era, the CSI A500 is expected to help investors grasp the upgrade of market beta.
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Impressive Long-Term Performance
The stock selection mechanism that fits the development of the times is ultimately reflected in the impressive returns of the CSI A500 Index.
The CSI A500 Index (total return) is a "long-distance runner", with an annualized growth rate of 10.3% since its base date (December 31, 2004), and a cumulative increase of 555.9%, higher than comparable indices during the same period.
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Why is A500 Worth It Amid the A-Share Boom?
Speaking of the current market environment, why do we favor broad-based indices represented by the CSI A500?
The CSI A500 was released on the eve of the major shift in "9·24" monetary and financial policy, and it was the first broad-based index after the "New National Nine Articles". As a representative index of the new generation of core assets, it was born against the backdrop of further solidification of the "policy bottom" in the stock market and the start of a new round of reversal in A-shares.
Let's take a look at the performance of the CSI A500 Index in the past A-share cycle rotations - after the appearance of the "policy bottom", the average increase of the CSI A500 Index in 120 days, 250 days, and 360 days was 8.64%, 17.98%, and 31.97%, respectively, providing investors with a good tool for laying out the bottom of the rising market.Broad-based index funds have always been favored by investors for their high win rate, flexibility, risk diversification, and proficiency in market trend-based movements, becoming the "standard" for the base allocation in asset allocation.
For the vast majority of ordinary investors, who want to share the era's dividends of A-shares, they inevitably hesitate when facing fluctuations, find it difficult to judge industries and styles, and don't know what to buy. In this case, using the CSI A500 offshore index fund as the base allocation might be a good choice.
After experiencing a sharp upward attack and a violent rebound, the current period is a period of adjustment for the A-shares. Huaxia CSI A500 Index (Class A: 022430 / Class C: 022431), as one of the first batch of offshore index funds tracking the CSI A500 Index, may provide investors with an opportunity to "get back on the bus" near 3200 points, and lay out a longer-term trend-based "reversal" market.
Invest in China's "new" assets
Choose Huaxia A500
Class A 022430 Class C 022431
Starting from October 25th, it will be heavily sold!
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