• News
• 2024-08-02

Diversified Allocation Across Industries for Steady Growth Potential

On September 23, 2024, China Securities Index Co., Ltd. announced the official launch of the CSI A500 Index (Code: 000510.CSI), which has selected 500 companies with large market value and active stock trading from various industries in China, bringing them together to form a brand-new "investment portfolio." The introduction of this index provides investors with a new investment reference benchmark and also offers new tools for asset management.

From a historical performance perspective, as of October 25, 2024, the CSI A500 Index has accumulated a return of 365.59% since its base date (December 31, 2004), exceeding the return of the CSI 300 at 294.07% for the same period; the annualized return of the CSI A500 Index since its base date is 8.32%, higher than the annualized return of the CSI 300 at 7.38% for the same period.

Recently, several fund companies, including E Fund, have issued funds that track the CSI A500 Index.

I. The debut of the CSI A500 Index creates a new benchmark for industry balance and liquidity integrated investment

The new "National Nine Articles" point out the development of equity-based public funds and promote the development of index investment. Recently, China Securities Index Co., Ltd. announced that in order to further enrich market representation tools and investment targets, the CSI A500 Index was officially released on September 23, 2024. Accordingly, the domestic broad-based index series has added a new member, opening up a new path for investors in market layout. This additional index option has enriched the range of investor choices and provided more possibilities for diversified investment strategies.

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As an important broad-based index after the release of the new "National Nine Articles," the launch of the CSI A500 Index marks another solid step for China's capital market in the field of index investment. Specifically, the CSI A500 Index takes December 31, 2004, as its base date and 1000 points as its base point. In terms of compilation, the CSI A500 Index selects 500 securities with large market value from various industries as index samples to reflect the overall performance of the most representative listed company securities in each industry.

In terms of the setting of the sample space, the CSI A500 Index is consistent with the CSI All-Share Index, ensuring the extensiveness and inclusiveness of the index.

Specifically, the sample space of the CSI A500 Index is consistent with that of the CSI All-Share Index, which is composed of depositary receipts issued by non-ST, *ST Shanghai and Shenzhen A-shares and red-chip enterprises (companies registered abroad with main business activities in China) that meet the following conditions. Among them, securities on the Science and Technology Innovation Board need to have been listed for more than one year, while other securities need to have been listed for more than a quarter, unless the security has been in the top 30 in terms of average total market value since its listing.

From the perspective of investability screening, the sample selection of the CSI A500 Index requires that the average daily transaction amount of the past year ranks in the top 90% of the sample space, ensuring that the index components have a certain market liquidity, and also increasing the transparency and trackability of the index.

In terms of the sample selection method, the CSI A500 Index excludes listed company securities with a CSI ESG evaluation result of C or below, and selects securities that meet the following conditions as candidate samples: ranking in the top 1500 in total market value within the sample space, belonging to the scope of Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect securities, and for mainboard securities, the proportion of free-floating market value in the corresponding CSI third-level industry is not less than 2%.It is worth noting that in the screening process of the CSI A500 Index among the candidate samples, not only market value and liquidity are considered, but also the balance of industries is taken into account. Such a sampling method allows the index samples to more closely reflect the true face of the market, thereby reducing the impact of a single factor on the index performance.

Among the candidate samples, the CSI A500 Index prioritizes selecting securities with the largest free-float market value in the third-level industry or with a total market value ranking in the top 1% within the sample space as index samples. Among the remaining candidate samples, a certain number of securities are selected from each CSI first-level industry according to the free-float market value to reach a sample size of 500, with the distribution of free-float market value across the first-level industries as consistent as possible with the sample space.

In terms of the index calculation formula, the CSI A500 Index uses an adjusted market value weighting calculation method, that is, the adjusted market value of the sample during the reporting period / divisor × 1000, where the adjusted market value = ∑(security price × adjusted number of shares × weight factor).

Overall, since the CSI A500 Index excludes securities of listed companies with a CSI ESG evaluation result of C or below during sampling, and prioritizes selecting leaders in the CSI third-level industries, it can timely include companies with larger market value and better liquidity in each industry as constituent stocks. Therefore, the refinement of the CSI A500 Index sampling method is reflected in the emphasis on ESG evaluation results and the priority selection of industry leaders, which helps to more comprehensively depict the industry structure characteristics of the A-share market and can dynamically reflect changes in market structure.

II. ESG Integration in Sampling, Industry Diversification Showcases Balanced Investment Value

So, compared to traditional large-cap broad-based indices such as the CSI 300, what advantages does the CSI A500 Index have?

Firstly, compared to traditional large-cap broad-based indices such as the CSI 300, the CSI A500 Index excludes securities of listed companies with an ESG rating of C or below. That is to say, the CSI A500 Index incorporates the ESG (Environmental, Social, and Governance) factor in the sampling process. When selecting constituent stocks, the index considers the company's social responsibility performance, environmental protection measures, and corporate governance structure.

This approach not only helps to enhance the overall quality of the index but also aligns with the increasing emphasis on sustainable investment in the current capital market. By excluding companies with lower ESG ratings, the CSI A500 Index encourages enterprises to improve their social responsibility and environmental protection standards, while providing investors with a more responsible investment option.

In addition, the CSI A500 Index considers industry balance during sampling, ensuring the industry diversification of the index. This makes the industry distribution of the CSI A500 Index more balanced, reducing the impact of fluctuations in specific industries on the overall performance of the index. Looking at the first-level industry weights, the industry distribution of the CSI A500 Index is more uniform, covering more industries.

Specifically, looking at the first-level industry weights, the CSI A500 Index has four industries with a weight exceeding 10%, and eight industries with a weight exceeding 6%, which is evenly distributed across industries. As of October 25, 2024, the constituent stocks cover 30 first-level industries of the Shenwan classification, with no single industry accounting for more than 10%, covering 35 second-level industries of the CSI and 91 third-level industries.In addition to this, the CSI A500 Index sample covers the 500 most representative listed company securities from various industries in the A-share market, with a more dispersed sample weight distribution.

Data from Eastmoney Choice shows that as of October 24, 2024, the top ten weighted stocks in the CSI A500 Index are Kweichow Moutai, CATL, Ping An Insurance, China Merchants Bank, Midea Group, Yangtze Power, Zijin Mining, Wuliangye, Eastmoney, and Industrial Bank; the sum of the top 5 weights is 13.96%, and the sum of the top 10 weights is 20.58%. During the same period, the sum of the top 5 weights in the SSE 300 Index is 15.41%, and the sum of the top 10 weights is 22.72%.

This means that compared to the SSE 300 Index, the sum of the weights of the top ten stocks in the CSI A500 Index is lower, and the sample weights are more dispersed, showing a lower concentration.

In summary, the refinement in the sampling method of the CSI A500 Index makes it superior to the traditional SSE 300 large-cap broad-based index in terms of industry coverage, quality of constituent stocks, and weight dispersion, providing investors with a more comprehensive, balanced, and socially responsible investment tool.

III. Market value coverage is broader than traditional indices, with superior historical returns

In addition to incorporating ESG factors, sample weight, and a dispersed distribution of constituent industries, the CSI A500 Index has a more balanced market value coverage and superior historical returns compared to traditional broad-based indices like the SSE 300.

The CSI A500 Index has a broad coverage. As of October 25, 2024, its constituent stocks have a balanced market value distribution, which is better than the SSE 300 and CSI 500, showing strong market representation.

As of October 25, 2024, the market value distribution of the CSI A500 Index is as follows: 107 companies with a market value of over 100 billion, 97 companies with a market value between 50 and 100 billion, 91 companies with a market value between 30 and 50 billion, and 205 companies with a market value between 0 and 30 billion. For the SSE 300: 136 companies with a market value of over 100 billion, 105 companies with a market value between 50 and 100 billion, 44 companies with a market value between 30 and 50 billion, and 15 companies with a market value between 0 and 30 billion. For the CSI 500: 15 companies with a market value between 50 and 100 billion, 118 companies with a market value between 30 and 50 billion, and 367 companies with a market value between 0 and 30 billion. For the CSI A50: 40 companies with a market value of over 100 billion, 7 companies with a market value between 50 and 100 billion, and 3 companies with a market value between 30 and 50 billion.

Overall, the CSI A500 Index shows characteristics of medium market value distribution. It is neither concentrated on large companies like the CSI A50 Index nor mainly covers small and medium-sized companies like the CSI 500. Compared to the SSE 300 Index, the CSI A500 Index has a more balanced market value coverage, covering companies of various sizes from large to small and medium, which better reflects the overall performance of the A-share market.

From the perspective of historical returns, since its base date of December 31, 2004, the cumulative return of the CSI A500 Index has reached 365.59%, surpassing the cumulative return of the SSE 300 Index, which is 294.07%. This data indicates that over the same long-term time span, the CSI A500 Index has brought higher capital appreciation to investors.Upon closer examination of the annualized return rates, the CSI A500 Index also demonstrates outstanding performance. Since its base date, it has achieved an annualized return rate of 8.32%, which is more substantial compared to the 7.38% annualized return rate of the CSI 300 Index.

In long-term investments, even minor differences in annualized return rates can significantly impact the final accumulated returns due to the compounding effect of time. The performance of the CSI A500 Index, on one hand, reflects the robust growth potential of its constituent stocks, and on the other hand, it also highlights the advantages brought by the balance in market capitalization coverage and industry distribution of the index.

IV. Exceptional Profitability with Projected Continuous Growth in Operating Revenue and Net Profit

Behind the impressive return rates lies the strong profitability and growth characteristics of the CSI A500 Index.

As of October 25, 2024, the earnings per share (EPS) of the CSI A500 Index is 320.06 yuan, outperforming the 306.17 yuan per share of the CSI 300, the 233 yuan per share of the CSI 500, and the 88.87 yuan per share of the CSI A50, demonstrating strong profitability.

In terms of growth, the CSI A500 Index is projected to have revenues of 469.8 billion, 502.3 billion, and 537 billion yuan for the years 2024-2026, with projected revenue growth rates of approximately 6.93% and 6.9%. Concurrently, the net profit is expected to be 40.8 billion, 45.2 billion, and 49.8 billion yuan, with projected net profit growth rates of approximately 10.74% and 10.17%.

The growth rate of net profit exceeds that of operating revenue, indicating that the constituent companies of the CSI A500 Index are improving profitability efficiency, with net profit growing at a faster pace, reflecting good profitability and cost control.

Overall, the growth performance of the CSI A500 Index shows a stable and optimistic growth trend in the coming years. The continuous growth in operating revenue and net profit, especially the leading growth rate of net profit, indicates that the constituent companies of the CSI A500 Index have strong market competitiveness and profit growth potential.

V. Easily Tracking the Potential of the A-Share Market: How to Invest in the CSI A500 Index with One Click

The CSI A500 Index is widely recognized in the market due to its constituent stocks reflecting the overall representativeness of the A-shares, high liquidity, and strong market competitiveness and profit growth potential. So, how can ordinary investors invest in the CSI A500 Index?Firstly, since indices cannot be directly purchased with a single click, investors who wish to participate in index investing must do so by purchasing index funds. For investors interested in index funds, there are two main methods available: one is to open a stock account to trade ETFs, and the other is to open a fund account to purchase exchange-traded index funds, both of which can meet investment needs.

However, there are certain differences in trading habits between these two investment pathways. For ordinary investors, if they choose to "buy and sell" ETFs, they must closely monitor the trading prices of ETFs during the exchange's trading hours. In contrast, for investors in exchange-traded index funds, the trading process is more streamlined, requiring only attention to the fund's net value fluctuations at the end of each day.

Especially for investors who prefer a "fixed investment" strategy, exchange-traded index funds are more convenient to operate because they only have one "price change" per day. Therefore, when choosing an investment method, investors should decide on the appropriate type of index fund based on their trading habits and investment needs.

Currently, there are a batch of exchange-traded index funds tracking the A500 index on the market, such as the Yifangda China Securities A500 Index Fund (Class A: 022459; Class C: 022460).

In summary, the launch of exchange-traded index funds like the China Securities A500 Index Fund provides a variety of investment options for different types of investors. Whether investors are pursuing long-term stable growth or looking to diversify risks through fixed investments, they can find suitable investment strategies in the China Securities A500 Index Fund.