After much anticipation,the first batch of ten A500 Exchange-Traded Funds (ETFs),including the A500 Index ETF (560610),officially made their debut on October 15th.This marks a significant development in the Chinese capital markets,as the demand for more diversified and representative investment vehicles continues to rise amidst the country's evolving economic landscape.

As China strives for high-quality economic growth,a new wave of productivity is permeating the capital markets,resulting in an increasing global appetite for Chinese assets.The CSI A500 Index was established in response to this demand,perfectly marrying market capitalization representation with industry balance.This new index symbolizes a vital evolution in the understanding of what it means to be a broad-based index in the A-share market.

The CSI A500 is touted as a comprehensive and upgraded broad index that includes 500 stocks of varying market capitalizations,accounting for around 58% of the A-share market's total market value,which is about 55 trillion yuan.This remarkable representation of market capitalization makes the A500 a beacon for gauging the overall performance of the A-share market and serves as a benchmark index for investors.

In terms of industry coverage,the A500 Index excels far beyond the CSI 300 Index,encompassing 91 distinct sectors (98% of the CSI total index),compared to the 63 sectors (68% of the CSI total index) covered by the CSI 300.This broad industry distribution is a result of carefully crafted guidelines—A500 aims to align the distribution of freely tradable market capitalization across primary industries with that of the sample space.Such a balanced industry allocation minimizes excessive exposure to specific sectors,effectively reducing overall index volatility while also aiming to enhance long-term returns.

However,merely representing market capitalization and industry balance does not automatically qualify an index for investment consideration.To address this concern,the A500 Index has integrated internationally recognized ESG (Environmental,Social,and Governance) criteria,narrowing its selection pool to stocks available in the Shanghai and Shenzhen Stock Connect programs.This strategic move not only emphasizes sustainable long-term development of listed companies but also positions the A500 as an appealing option for both domestic and international investors making mid- to long-term allocations.By the end of September,firms classified as “specialized,refined,distinctive,and innovative,” along with those rated BB or above in ESG ratings,made up 36% and 64.2% of the A500,respectively—surpassing the CSI 300's 27.3% and 63.7% and indicating superior quality in the selected companies.

As China's industrial structure continues to upgrade,it's crucial to note that traditional market cap-weighted large-cap indexes have been slow to adapt,resulting in a lag in the representation of future-oriented productivity leaders.The A500 Index,however,makes a concerted effort to incorporate industry leaders from emerging sectors,effectively directing capital flows into critical areas of new productivity and fulfilling the capital market's dual roles in resource allocation and value discovery.This way,the A500 rewards investors by aligning with future economic directions.

Data illustrates that the sector weight distribution of the CSI A500 closely aligns with the CSI total index,with significant over-representation in industries like industrials,information technology,materials,communication services,and health care,compared to traditional sectors like finance,consumer goods,and energy,which are somewhat under-weighted.

The A500 Index employs a principle akin to stratified sampling to ensure that leading companies in specialized fields are included.This methodology signifies a shift in selection criteria to three-tiered industries,lowering the market cap thresholds for eligible stocks to the top 1500 by daily average market value and the top 1% in total market capitalization.This inclusive approach allows emerging industry stocks—often thriving in the initial growth stages—to be integrated into the index,making it more forward-looking and growth-oriented,in stark contrast to traditional indexes that may overly focus on established entities.

Many financial institutions are optimistic about the investment opportunities presented by the A500.Guoyuan Securities Research Institute has highlighted that a shift in China’s capital allocation towards increased risk tolerance will likely lead to a substantial inflow of global capital,contributing to a re-evaluation of the value of RMB-denominated assets.Both the CSI 300 ETF and the A500 ETF stand poised to capitalize on this,as they represent core Chinese assets,making it plausible for the thematic rallies at the index level to maintain momentum through external and internal synergies.

Tianfeng Securities asserts that stocks within the A500 Index that are not part of the CSI 300 may benefit the most from incremental capital inflows,mainly those from sectors like semiconductors,batteries,and powergrid equipment.The fundamentally balanced industry exposure of the A500,resembling a concentrated version of the mid- to large-cap total index,may be better suited as a "foundation index" for various investment strategies.Recently,the market has begun to price in a "style rebalancing," where the inherent balance of the A500 may make it an even more appropriate choice for passive index-based investing.

West Securities anticipates that household financial investments will continue to flow into the stock market,supported by the addition of mid- to long-term capital and potential stabilization funds,positioning the A500 as a viable instrument for new A-share investments in the medium to long term.Unlike traditional broad-based indexes,the A500 aptly reflects the transitional characteristics of the new and old driving forces of the Chinese economy,aligning seamlessly with the ideals of developing new productivity while showcasing growth prospects and industry balance.

The launch of the A500 Index ETF (560610) arrives at a fortuitous time,as it presents investors with an innovative avenue to tap into the potential of the A-share market while contributing to the future growth of well-performing firms.

As a passive index investment vehicle tracking the A500 Index,the A500 Index ETF (560610) has several attractive features,including:

• Low cost: With an annual management fee of 0.15% and a custodian fee of 0.05%,the expense ratio is roughly one-third of the typical 0.5% management fee and 0.1% custodian fee associated with standard ETFs.
• Compulsory dividend distribution: According to the fund contract,the fund will evaluate its excess returns relative to the index on the last trading day of each quarter.When excess returns exceed 0.01%,the fund will distribute at least 80% of those profits to holders,ensuring that investors share in the fund's success.

Recently,buoyed by supportive policies,enhanced market efficiency,and inherent product advantages,equity-based ETFs have rapidly expanded during this market rebound,surpassing 3 trillion yuan in size.This signifies the advent of a passive investment era,as broad-based index ETFs are undeniably becoming the "keystone" and "stabilizer" of the market.

The trading commencement of the A500 Index ETF (560610) is exceptionally timely,offering investors a fresh opportunity to engage with investment prospects in A-shares and partake in the high-quality growth trajectory of enterprises.

The CSI A500 Index is compiled and released by the China Securities Index Company.While measures are taken to ensure the accuracy of the index,no guarantees are made regarding its correctness,and the organization does not take responsibility for any errors in the index.Given its relatively short operational history,the index may not reflect all phases of market development.

Risk warning: Investing in funds involves risks,and caution is advised.