Recently, social media often talks about "concretizing happiness." When the originally abstract, heart-felt sense of pleasure is projected into real-life scenarios, such as "a small stove with red clay," "buds sprouting on branches," "a movie outing with three or five friends," or "an admission letter earned through hard work," happiness becomes concrete at that very moment.

Investment guru Warren Buffett often says that the best investment method for ordinary people is to invest in index funds regularly. In his "Letter to Shareholders," he also wrote: "My will's suggestion for my trust fund is very simple: put 10% in cash in government bonds, and the other 90% entirely in low-management-fee S&P 500 index funds."

For many non-professional mass investors, this concept is somewhat abstract. The arrival of the CSI 500 Exchange Traded Fund (ETF) has given a more concrete expression to the investment method that Buffett highly recommends as the best for ordinary people in the wealth management methodology of the Chinese public.

01

Justifying the Market Beta's Upgrade

Once upon a time, people sought China's "S&P 500" and the A-share equity base for asset allocation, and they found the CSI 300 Index.

The CSI 300 Index was released in April 2005, composed of the 300 largest and most liquid stocks in the Shanghai and Shenzhen markets. Since its inception, it has become the golden standard of the Chinese stock market.

More than twenty years have passed, and society has undergone tremendous changes, which we have deeply felt. Per capita GDP has increased more than tenfold, with many people's monthly earnings changing from a few hundred to a few thousand. If one moves a little slower, they are left behind by the times.

However, the prosperous low-hanging fruit cannot always be picked up at will. As the old dividends fade, the high-speed domestic economic growth train began to slow down around 2012 and 2013.

This "shift in momentum" is also a gradual division between the old and new economies. With the surging waves of the digital economy and carbon neutrality, companies face unprecedented challenges and also welcome the opportunities born in the process of era iteration.Looking at the development patterns of global economies, the transformation and upgrading of the old and the new are the inevitable path to achieve high-quality development. The changes in the economic growth structure have been captured by the China Securities A500 Index released in the fall of 2024. Through innovative optimization in index compilation methods, these changes are reflected in the index's weightings.

How is the core "new" asset broad-based flagship index specifically compiled? The strategy behind the compilation seeks an effective path for the upgrade of market beta.

Firstly, all stocks from the China Securities All-Share Index sample pool are taken, excluding those with the lowest 10% average daily trading volume over the past year and those with a China Securities ESG rating of C or below. Companies with relatively poor qualifications are screened out first, and then the selection process begins.

A pool of 1500 stocks is selected based on market capitalization, and they must be within the scope of the Shenzhen-Hong Kong Stock Connect or Shanghai-Hong Kong Stock Connect. Finally, industry leaders are sought within this pool, in two steps.

Step one: Select stocks with the largest free float market capitalization in the third-level industry or those ranked in the top 1% by total market capitalization to form a preliminary sample. Step two: From the remaining pool, select some stocks with higher circulating market capitalization in the first-level industries, ensuring that the total number of stocks reaches 500, and the distribution of free float market capitalization across all first-level industries is as consistent as possible with the sample space.

Compared to the CSI 300, the China Securities A500 has a more balanced industry distribution and includes more leaders in emerging fields. Looking at the constituent stocks, the China Securities A500 has reduced the weight of traditional industries such as non-bank finance, banking, food and beverages, and agriculture, forestry, animal husbandry, and fisheries by about 12% compared to the CSI 300 Index. Where did this weight go?

It was evenly distributed to other emerging industries. After this adjustment, approximately 50% of the index consists of traditional value-oriented industries, such as finance, raw materials, consumer goods, energy, and public utilities... The other 50% consists of new growth-oriented industries, such as telecommunications, electronics, power equipment, pharmaceuticals and biotechnology, etc., which are the investment scope we refer to as "new quality productive forces."

Such a compilation method has given birth to a broad-based index that gathers leaders from various industries, an index that more closely fits the changes in the GDP growth structure, and reflects the shadow of an era. Investing in the era's beta now has a better solution.

Every change and optimization of the core broad-based index represents a significant shift in competitiveness.

Comparing the China Securities A500 Index with the CSI 300, the Shanghai Composite Index, and the China Securities 800 Index, the China Securities A500 has seen a cumulative increase of 134.58% since 2007, while the China Securities 800 has increased by 116.58%, the CSI 300 by 93.83%, and the Shanghai Composite Index by 26.32%.The "intelligent" stock selection mechanism of the index, which aligns with the development of the times, is ultimately reflected in its long-term returns.

02

Timely Arrival - Entering the Lives of Ordinary People

If the birth of the A500 index provided the possibility for investing in beta during the investment era, marking the first step, then the current moment, with the arrival of related exchange-traded index funds, is a further step, making index investing of this era more inclusive in terms of financial services.

On one hand, the general public investors who are not professional now have tools that they can understand and use. Purchasing exchange-traded index funds does not require opening a securities account. Ordinary index funds are priced based on net value, there is no need to monitor the market in real-time, and investment operations are relatively simple. It is also possible to set up automatic investment plans. What Warren Buffett said, "The best investment method for ordinary people is to invest in index funds regularly," has become more concrete.

At the same time, after a three-year-long period, a revival plan is being carried out vigorously in the A-share market. A multi-factor driven, explosive feast has allowed many investors to recognize index investing once again. The policy wind has not yet subsided, the change in expectations has become a fact, the bear market brand is slowly being smoothed out, and people's attention to A-shares and funds is rising sharply.

At this moment, the core "new" broad-based A500 index is stepping out of the exchange, moving to the over-the-counter market, and entering the lives of ordinary people. This will be an important step forward in the field of wealth management, which is timely and well-directed.

Currently, people seem to need more concrete data to strengthen their resolve to buy.

Concrete evidence 1: Since September 24th, in less than a month, multiple major press conferences have been held intensively, and various policy easing measures have been continuously intensified, continuously verifying that this policy change will be a sustained spring breeze.

Concrete evidence 2: Through the subtle changes in the economic structure in the third quarter, some optimistic clues can be seen: with improvements in fixed investment, consumption, industrial value added, and the service industry production index, economic indicators more related to policy, represented by infrastructure investment growth, rebounded in September.Tangible Evidence 3: As the global landscape shifts with the onset of an overseas interest rate cut cycle, global capital is facing a repricing and reshuffling. The gears of "East rising, West falling" are turning again. In the face of unexpected policies from the decision-making layer and the still evident stock market, foreign capital is still looking for opportunities to replenish China, providing a better liquidity foundation for the rise of the domestic equity market.

A-shares and Hong Kong stock markets have competitive strength in horizontal comparison.

The A500 Index, during its compilation, introduced the China Securities ESG evaluation and restrictions on the scope of Shanghai-Shenzhen Stock Connect components, which further enhances its attractiveness to foreign capital.

Tangible Evidence 4: Statistics show that in the past A-share cycle rotations, the average increases of the CSI A500 Index were 8.64%, 17.98%, and 31.97% at 120, 250, and 360 days after the appearance of the "policy bottom," respectively. This provides investors with a good tool for laying out the bottom of the rising market. This is our tangible evidence for investing in the A500 Index. It is undeniable that many high-quality assets in the current A-share market still have a large room for price repair, and there may be good returns in the medium to long term. For the vast majority of ordinary households, if they want to lay out at a low position in the A-share market but do not know what to buy, and it is difficult to judge industries and styles, they can use the CSI A500 exchange-traded index fund as a base position.

Recently, there have been many emotions. Over the past two decades, there have been several memorable moments when public funds "flew into ordinary households." Memories may be distant, and the past is inevitably dusty, so many investors may not remember.

The first time was in the first five years of this century when the Shanghai Composite Index went through difficult times. However, structurally, the rapid development of the economy led to the blooming of the "five golden flowers," and the performance of high-quality blue-chip stocks was significantly stronger than the overall market. Research created value for the first time in the market, and the value of public funds began to be recognized by more investors.

At that time, fund managers took the industry's prosperity as the starting point for investment, actively allocated to the five major industries, and achieved excellent investment performance. According to statistics, in 2003, 104 funds made a total profit of 13.992 billion, 15 equity open-end funds' net value increased by 18.96%, and the average growth of 54 closed-end funds was 20.64%, while as many as 80% of individual investors were at a loss.

The second time was the "fund" passion burning from 2006 to 2007. With the outbreak of the big bull market, public funds ushered in a major performance explosion. Media reports said that the average return of 123 equity funds in 2007 exceeded more than one time.

Investors were gradually attracted by the money-making effect of public funds, and the industry scale also迎来了 a rapid expansion. By the end of 2007, the total number of fund holder accounts exceeded 110 million, about 1/4 of urban resident families participated in fund investment, and the fund scale was approximately 1/6 of residents' RMB savings deposits.At present, in front of A500, some people in the industry say: This is a comprehensive linkage of the new index launch, from inside the venue to outside the venue, from passive to index enhancement. The level of attention from top to bottom is unprecedented.

Yes, if this time we can use the A500 OTC index fund to simplify and popularize the way of investing in core assets of the era and capturing beta returns, and walk out of the exchange and go to the vast number of ordinary families, then to some extent, the original intention of public funds for inclusive finance will reflect a further and more concrete answer in the current era background.