Bank Manager Unusually Recommends A500 Index Fund

Recently, two of my bank's financial products are about to mature. As usual, my client manager would recommend products with suitable interest rates and holding periods from their bank for me. However, this time, she recommended a fund product to me. Since I haven't told her that I'm already a loyal fan of index investing, I was quite surprised to see her recommending an index fund product to me. I do like this index myself, so I decided to follow her logic to understand why she recommended me to buy the A500 index fund.

The four "highlights" of the CSI A500 Index:

First and foremost, the core is the index itself. The CSI A500 may be the most well-constructed and "highlighted" broad-based index to date.

Now that the first batch of A500 off-exchange index funds has been approved, we can completely use it as an alternative to the CSI 300 when making diversified asset allocations. Both play the same role, but the performance of the CSI A500 may be slightly better.

These points are crucial:

(1) More balanced large market valueThe CSI A500 Index is composed of 500 securities with larger market capitalization and better liquidity selected from various industries in the Shanghai and Shenzhen A-share markets, reflecting the overall performance of the most representative listed company securities in each industry.

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Compared to the CSI 300, in addition to selecting large-cap stocks, the CSI A500 focuses on reducing the concentration in a single industry.

Its constituent stocks cover all 35 of the CSI second-level industries and 30 of the 31 Xinwan first-level industries, emphasizing comprehensive coverage and balance.

(2) High concentration of "new"

The CSI A500 can more effectively reflect the transformation trend of China's economy by increasing the proportion of the "new economy" sector.

In terms of industry composition, the index has reduced the proportion of banks, non-bank financials, and food and beverage industries, while increasing the proportion of emerging industries such as information technology, industry, discretionary consumption, and new materials, which is more in line with the development direction of new quality productive forces.

This is also more consistent with our investment concept of "buying an index is buying the future."

(3) High-quality companies

The CSI A500 also combines screening conditions such as interconnectivity and ESG during the compilation process, striving to select the best among the best.As of the 2023 annual report, the average return on equity (ROE) of the constituents of the CSI A500 Index was 9.99%, and the average revenue growth rate was 1.75%, both of which are superior to large and mid-cap broad-based indices including the CSI 300 and the CSI 800.

(4) Good past performance

As of October 17, 2024, the CSI A500 Index has accumulated a total return of 341.86% since its base date (December 31, 2004), with an annualized return of 8.04%; this outperforms the CSI 300 Index over the same period (cumulative return of 277.32%, annualized return of 7.17%).

Don't Confuse CSI A500 with CSI 500

The client manager later reminded me that if I were to buy, I must confirm that it is the "CSI A500," not the "CSI 500."

This reminder is indeed necessary because, although the names of these two indices are very similar, their compositions are completely different. If you buy the wrong one, the outcome may deviate from your own risk budget and return objectives.

The CSI 500 is composed of stocks ranked 301-800 in market value outside the Shanghai-Shenzhen 300, with a total market value of about 12.9 trillion. Therefore, the CSI 500 has long been considered an important indicator for measuring small and mid-cap stocks in the Chinese A-share market.

On the other hand, the total market value of the constituents of the CSI A500 is comparable to that of the Shanghai-Shenzhen 300, with about 70-80% of the constituents overlapping with the Shanghai-Shenzhen 300, both serving as a barometer for large-cap stocks in the A-share market.

Looking at the market value distribution of the constituents, it is clear that the CSI A500 better represents the core assets and large-cap leaders of the Chinese A-share market.

Therefore, for investors, especially those who are new to index investing, buying the A500 now offers a higher safety margin, better cost-effectiveness, and better control.This might also be an important reason why the account manager pushed the A500 to me and reminded me not to buy the wrong one.

Top 2 in the ranking of off-exchange index products

I had previously purchased an actively managed equity fund from Bosera, and then after the account manager recommended it, I looked at Bosera's index products again and felt they were quite attractive too.

Its persistent and strengthened philosophy of "global perspective + Chinese characteristics" aligns well with the concept of index investing.

Bosera Fund has 15 years of experience in passive index management. As of June 30, 2024, it manages 97 ETFs and index funds with a total management scale of 111.6 billion yuan.

It is particularly worth mentioning that Bosera has been actively deploying off-exchange index products in recent years. Upon taking a glance, the product line is very rich, covering five major mainstream tracks: broad-based, Smart β, cross-border, industry themes, and bonds. The number of products ranks in the top 2 in the entire market (as of October 23, 2024).

Therefore, for this time's CSI A500 Index, Bosera naturally will not be absent and has secured a seat in the first batch of off-exchange index funds released.

The investment targets of off-exchange index funds are similar to ETFs, tracking a specific index's investment portfolio. For off-exchange funds tracking stock indices, the investment targets include the constituent stocks and alternative constituent stocks of the index.

The investment targets of ETF feeder funds are the target ETF (generally not less than 90%) and other qualified varieties (including the constituent stocks and alternative constituent stocks of the target index and other varieties).

Therefore, compared to feeder funds, off-exchange index funds have a relatively higher degree of tracking the index.Additionally, unlike ETFs, neither OTC index funds nor ETF-linked funds can be traded on the secondary market, but they are very suitable for investors without a stock account to purchase.

BoShi's CSI 500 Index Fund stipulates that it will assess whether the conditions for dividend distribution are met every quarter, and if they are, the manager has the right to arrange for dividends to be distributed quarterly. Assessing dividends on a quarterly basis will neither overly frequently interfere with investors nor take into account the investors' cash flow needs.

Well, I've decided, when it is officially launched on October 25th, it is indeed worth paying attention to BoShi's OTC CSI 500 Index Fund (Class A: 022457, Class C: 022458).