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Equity ETFs exceed 2 trillion yuan mark

Effectively improve market activity and stability

China Fund News reporter Zhang Yanbei

The wave of passive investment is surging, and equity ETFs have broken through another important threshold.

As of the end of July, the total scale of equity ETFs in the entire market (excluding cross-border ETFs) has reached 2 trillion yuan. Since it first reached 1 trillion yuan in November 2022, it took less than two years for the scale of equity ETFs to break through the second trillion yuan.

The public offering institutions and people interviewed believe that the surge in the scale of equity ETFs is inseparable from the resonance of multiple factors such as time, location, and people. As the total scale exceeds the 2 trillion yuan mark, equity ETFs have become one of the important tools for institutional asset allocation and resident wealth management, the construction of a multi-level capital market system, and the promotion of high-quality development of the real economy.

The total scale exceeded 2 trillion yuan

Equity ETFs continue to advance

Since 2024, the A-share market has continued to fluctuate, and equity ETFs have maintained a high-speed development momentum, with the total management scale continuing to rise against the trend.

Wind data shows that as of the net value update on July 31, the total size of 782 equity ETFs in the market has reached 200.7126 billion yuan, officially breaking through the 2 trillion yuan mark, setting a new milestone in the ETF market.

Looking back at the growth of equity ETFs, it took 18 years from 0 to the first 1 trillion yuan, and less than two years from 1 trillion yuan to 2 trillion yuan. In 2004, my country's first ETF product, Huaxia SSE 50 ETF, was established, opening the era of index investment in the domestic market. However, my country's equity ETF market has been in a long-term slow development stage since then. It was not until 2012 that it achieved a breakthrough of 100 billion yuan, and then exceeded 200 billion yuan in 2014.

Since 2018, ETF development has entered a fast lane. The total scale of the equity ETF market first exceeded 500 billion yuan in early December 2019, then broke through the 1 trillion yuan mark at the end of November 2022, and then exceeded 1.5 trillion yuan in early February this year, and now has reached the 2 trillion yuan mark, showing an accelerated growth trend.

As the scale grows faster and faster, equity ETF products are developing rapidly and their coverage is becoming richer, including broad-based, industry, thematic, smart beta, etc., meeting investors' allocation needs for various asset classes.

While the total scale of equity ETFs has exceeded 2 trillion yuan, the scale of equity ETFs with a scale of tens of billions of yuan is also continuing to expand. As of July 31, there are as many as 24 equity ETF products with a scale of tens of billions of yuan in the market, 3 more than at the end of 2023.

There is no doubt that my country's equity ETF market has grown from zero to a total scale of over 2 trillion yuan in the past 20 years, which has been achieved through the joint efforts of multiple parties.

Tan Hongxiang, deputy director of the Index Investment Department of Huatai-PineBridge Fund Management, said that at the international level, the global ETF market has achieved rapid growth after the 2008 financial crisis. On the one hand, passive investment has gradually replaced active investment, and on the other hand, ETFs as a fund product carrier have exploded. The two together have become an important driving force for the development of my country's equity ETF market; at the domestic level, one is the foresight and strong support of regulatory agencies, the second is the proactiveness of market institutions, and the third is investors' acceptance and recognition of equity ETFs.

Guotai Fund also believes that in recent years, the development of equity ETFs has been "at the right time, in the right place, and with the right people". On the one hand, with the gradual advancement of the deepening reform of the capital market, the construction of the domestic ETF market has been continuously improved, attracting medium- and long-term funds to enter the market and helping to achieve common prosperity. At the same time, innovative products will continue to be enriched to better meet diversified investment needs. On the other hand, during China's economic transformation period, ETFs focus on supporting national strategic areas, promoting high-level circulation of science and technology, capital and the real economy, providing the market with efficient investment tools, sharing the dividends of economic transformation, and obtaining huge development opportunities.

"The driving force behind the growth in the scale of equity ETFs in recent years is mainly due to the continuous maturity of my country's capital market." Yin Hao, fund manager of the Index and Quantitative Investment Department of Bosera Fund, added that in recent years, the proportion of institutional investors in A-shares has continued to increase, the effectiveness of the capital market has gradually improved, alpha returns have become increasingly difficult to obtain, and investors earn more returns from asset allocation, and equity ETFs are a good tool for asset allocation.

Wang Puxiu, a wealth manager at Paipai.com, holds a similar view. "In the past, because China's capital market was relatively young, the market's pricing efficiency was not high, and public funds had an advantage in fundamental research, making it easy to discover mispriced investment opportunities. However, as the A-share market has been rectified, and as investor entities and tools have become more diversified, the participation of foreign capital, quantitative factors, and long-short strategies has greatly improved the pricing efficiency of assets, making it much more difficult for active fund managers to obtain alpha," he said.

It is worth noting that in the 2 trillion yuan equity ETF market, 51 companies with a layout have now formed a "stronger, stronger" pattern. Data shows that as of July 31, Huaxia Fund's equity ETF management scale was 432.7 billion yuan, accounting for 21.56% of the total equity ETF market. E Fund's equity ETF management scale was 350.6 billion yuan, with a market share of more than 17.5%, ranking second in the market. Huatai-PineBridge also exceeded 300 billion yuan, accounting for 15.4%, ranking third. In addition, Harvest, Southern, Guotai, and GF also managed more than 70 billion yuan, ranking in the second echelon.

Equity ETFs bring long-term money to volatile markets

Improve market activity and stability

The total scale of equity ETFs has exceeded 2 trillion yuan. This milestone achievement not only marks the prosperity and vitality of the ETF market, but also reflects investors' strong demand for equity products and the market's high recognition.

Speaking of this, Wang Puxiu said that after the continuous influx of funds into the ETF market, the industry structure of public funds has also changed, which will not only affect the size ranking of fund companies, but also the investment ecology of the public fund industry, and even affect the entire A-share market. Drawing on overseas experience, it is foreseeable that as the A-share market gradually matures, it will become increasingly difficult for fund managers to obtain excess returns. Therefore, a considerable number of active equity funds, which are currently large in number and highly homogenized, may gradually exit the market in the future.

In this context, Guotai Fund believes that, on the one hand, ETFs provide investors with a more diversified choice of investment tools, which will help improve investors' sense of gain in the long run. ETF investors are mostly converted from stock investors. They find that ETFs have advantages over individual stocks such as risk diversification and convenient trading, so they are more willing to participate in the market through ETFs. This transformation will also help improve the stability of the A-share market.

On the other hand, ETFs play an important role in volatile markets, increasing market activity and stability. Affected by uncertainties at home and abroad, A-shares continue to fluctuate, but the valuation and cost-effectiveness have clearly rebounded. In recent years, some ETF products have risen against the trend, attracting the attention of funds, providing allocation tools for medium and long-term funds, introducing capital flow, and effectively boosting the market.

Zhao Xu, deputy general manager of the Index and Quantitative Investment Department of ICBC-RBC, further pointed out that the rapid development of ETF scale in recent years reflects the recognition of ETF by various market participants, and its tool attributes have also been more widely used. The scale exceeding 2 trillion yuan is an important milestone in its development. In the future, the market's awareness of ETF will continue to increase, and the characteristics of low fees and transparency will also play a greater role in asset allocation.

"Equity ETFs attract funds to flow into key national areas by allocating high-quality stock targets, and serve the high-quality development of the real economy." A public fund person in Beijing also said that the release of the new "Nine National Regulations" provided policy support for the development of ETFs, boosted investment sentiment, and played the role of a market stabilizer.

Tan Hongxiang concluded, "For the fund industry, equity ETFs are tool-type products that do not pursue excess returns. At the same time, the scale effect is significant. Fund companies are expected to open up a relatively independent growth track and bring new growth space to the industry."

Broad-based ETFs are developing at an accelerated pace

The overall scale exceeded 1.44 trillion yuan

China Fund News reporter Lu Huijing

Behind the strong breakthrough of the total scale of stock ETFs to 2 trillion yuan, broad-based ETFs can be said to be the "main contributor" behind it.

Wind data shows that as of the end of July, the total scale of broad-based ETFs reached 1.44 trillion yuan, an increase of nearly 600 billion yuan compared with the end of last year, an increase of more than 71%. During the same period, the scale of stock ETFs increased by 553.182 billion yuan, an increase of 38.05%. It can be said that broad-based ETFs have achieved a "faster" development than stock ETFs.

At the same time, the emergence of "big guys" broad-based ETFs is accelerating. As of the end of July, the total scale of Huatai-PineBridge CSI 300 ETF exceeded 263.9 billion yuan, setting a new record. In addition, the latest scale of CSI 300 ETF of E Fund has exceeded 170 billion yuan, and the scale of China Asset Management SSE 50 ETF, Harvest CSI 300 ETF, and China Asset Management CSI 300 ETF has also exceeded 120 billion yuan. The number of stock ETFs with a scale of 100 billion yuan has increased by 4 compared with the end of last year, and all of them are broad-based ETFs.

In the view of industry insiders, the A-share market is currently at a relative bottom range, and broad-based ETFs have a more balanced industry distribution and can obtain a higher market average return, and are therefore favored by market funds.

The scale of broad-based ETFs exceeded 1.44 trillion yuan

Accounting for more than 70% of the stock ETF size

As the effectiveness of the A-share market continues to improve, broad-based ETFs are increasingly recognized by investors for their advantages in effectively diversifying risks, reducing portfolio volatility, and obtaining average market returns, and are becoming the backbone of the stock ETF market.

Wind data shows that as of the end of July, the number of broad-based ETFs listed on the Shanghai and Shenzhen Stock Exchanges reached 232, an increase of 24 from 208 at the end of last year, an increase of 11.54%; the total scale of broad-based ETFs reached 1.44 trillion yuan, an increase of 598.732 billion yuan from the end of last year, an increase of 71.07%.

In the past one or two years, broad-based ETFs have also accelerated their development relative to overall stock ETFs. In the first seven months of this year, the scale of stock ETFs increased by 38.05%, and the scale growth of broad-based ETFs was 33.02 percentage points higher than that of stock ETFs; in the whole year of 2023, the scale of broad-based ETFs increased by 272.481 billion yuan to 842.406 billion yuan, an increase of 47.81%. During the same period, the scale of stock ETFs increased by 35.86%.

The proportion of broad-based ETFs in the size of stock ETFs has also been rising steadily, first increasing from 53.26% at the end of 2022 to 57.94% at the end of 2023, and then directly increasing to 71.80% at the end of July this year.

As medium- and long-term funds continue to increase their holdings, leading broad-based ETFs are also emerging at an accelerated pace. As of the end of July, the total scale of Huatai-PineBridge CSI 300 ETF reached 263.906 billion yuan, a record high. The latest scale of E Fund CSI 300 ETF reached 174.395 billion yuan, also setting a record high. In addition, the scale of Huaxia SSE 50 ETF, Harvest CSI 300 ETF, and Huaxia CSI 300 ETF all exceeded 120 billion yuan, and the number of 100 billion yuan-level broad-based ETFs reached 5. By the end of 2023, there will be only one broad-based ETF with a scale of more than 100 billion yuan.

The idea of ​​capital allocation has shifted from sharpness to winning rate

Boosting the development of broad-based ETFs

Many industry insiders pointed out that broad-based ETFs have a more balanced industry distribution, can obtain higher market average returns than industry ETFs, are more in line with the current investment preferences of market funds, and therefore grow in scale more rapidly.

In the view of Tan Hongxiang, deputy director of the Index Investment Department of Huatai-PineBridge Fund Management, the rise of broad-based ETFs can be summarized as follows: First, from the perspective of the product characteristics, broad-based ETFs have always had the advantages of clear style, transparent holdings, and suitability as a "module" for investment portfolios. The larger the scale of broad-based ETFs and the more investors there are, the better and larger their liquidity and market capacity will be, and the marginal management cost will drop significantly. After reaching a certain level, the use value will increase from quantitative change to qualitative change.

Second, from the perspective of balancing investment returns and risks, in the dual downward cycle of macroeconomic growth and capital market performance since 2022, using broad-based ETFs for investment can not only prevent the potential non-systemic "thunder" risks of investing in individual stocks or single industry theme ETFs, but also avoid the additional uncertainty of industry and style drift that may be brought about by investing in a small number of active equity funds;

Third, from the perspective of market ecological construction, broad-based ETFs have a complete business environment, and the product abundance of industry-themed ETFs, cross-border ETFs, etc. has increased. While broadening the range of choices for investors, it will also drive the synchronous development of broad-based ETFs from the perspective of asset allocation portfolio, and realize mutual empowerment between different ETF types and the mutual integration of tool usage value.

Yin Hao, fund manager of the Index and Quantitative Investment Department of Bosera Fund, also believes that the current market is basically at a relative historical bottom, both in terms of policy and sentiment. Due to the strong instrumentality of ETFs, investors tend to use ETFs to deploy at the bottom, expecting to earn profits in the rebound. However, when the market rebounds from the bottom, it is difficult for investors to find an index whose main line can significantly surpass the sector and has a relatively balanced distribution. Therefore, investors are more willing to allocate broad-based ETFs.

"The current scale of A-share broad-based ETFs still has a large room for growth, and we believe that the scale growth trend of broad-based ETFs will continue," said Yin Hao.

"Under the current low market valuation level, the certainty of investing in broad-based ETFs is relatively strong. Especially in the current volatile market, investors' risk appetite is declining, and the market's overall thinking on investment targets has gradually shifted from sharpness to focus on winning rate. If there is no significant change in the macro environment in 2024 and no obvious investment theme appears in the industry, the capital inflow rate of broad-based ETFs may still be higher than that of industry-themed ETFs. At the same time, with the demand for institutional allocation and the large market capacity, broad-based ETFs, especially those in strategic policy-related sectors, may still achieve significant growth in the future." Another person from a fund company held a similar view.

Efforts on both supply and demand sides

Promoting the continued steady development of equity ETFs

China Fund News reporter Fang Li

The global passive investment wave is rolling, and the total scale of A-share equity ETFs (excluding cross-border ETFs) has exceeded the 2 trillion mark, attracting market attention.

Data shows that the total size of public equity funds currently exceeds 6 trillion yuan, and the size of equity ETFs has exceeded 2 trillion yuan, accounting for one-third of the size of public equity assets. The booming ETF is becoming more and more important and will become the main tool for all types of investors to participate in equity market allocation.

Many fund professionals have suggested that in the future, measures such as providing more specialized ETF products, deepening ETF investor education, and promoting the buy-side investment advisory model can be taken to promote the steady development of the ETF market and encourage more investors to participate.

Equity ETFs play a "bridging" role

As an important channel for funds to enter the A-share market, the scale of equity ETFs has grown explosively and has now exceeded the 2 trillion mark. With the steady progress of various measures to deepen the reform of the new round of capital markets, there is broad room for the development of domestic index investment, and the ETF market will continue to develop at a high speed, playing an increasingly important role in the capital market, and will become the main tool for various investors to participate in equity market allocation.

"In residents' wealth management, equity ETFs will play a more connecting role. On the one hand, as a funding party, equity ETFs have strict lower limit requirements on the securities allocation ratio, which can provide solid and stable long-term funds for the capital market. When the market is under pressure, it will effectively play the role of 'anchor' and 'buffer', which is conducive to reducing the overall market volatility and promoting the stable and healthy development of the capital market. On the other hand, as an asset party, equity ETFs, in the form of a basket of securities, create tradable assets for various investors, including individuals and institutions, with significantly lower non-systematic risks and more optimized risk-return characteristics compared to individual securities, which greatly expands investors' allocation and trading options." Tan Hongxiang, deputy director of Huatai-PineBridge Index Investment Department, analyzed.

Tan Hongxiang also pointed out that, in general, the development tone of equity ETFs is still upward, which is mainly reflected in the two aspects of supply and demand. In terms of product supply, although the layout of equity ETFs is relatively sufficient, there is still room for expansion. In terms of investment demand, the scale of equity ETF investor groups still has a lot of room for growth.

Tan Hongxiang further stated that on the investment demand side, even among existing holders, there is still a large part of investment demand that has no corresponding products and strategies to meet it. As various types of investors become increasingly mature, they will have more personalized service demands. Fund companies can then innovate and fully mobilize the joint efforts of all parties to provide investors with a full range of services through market updates, investment view output, timing trading recommendations, and customized configuration plans. In this way, they can leverage broader and more sticky ETF investment demand, which may be a reshaping of the entire equity ETF market landscape.

Wang Puxiu, a wealth manager at Paipai.com, also said that the growth of ETFs will continue, which will affect the investment ecology of the A-share market. At present, the total scale of public equity funds is only more than 6 trillion yuan, while the scale of equity ETFs has exceeded 2 trillion yuan, accounting for one-third of the scale of public equity assets. If public funds are an important force in stabilizing the A-share market, then the importance of ETFs is self-evident, and it will also become the main tool for residents to participate in equity market allocation.

From the perspective of the fund company, Guotai Fund believes that the future development of ETFs may focus on product innovation. The existing markets such as broad-based ETFs and mainstream industry ETFs are already a red ocean, so it is necessary to think about the incremental market and increase resource investment in products, including the establishment and improvement of the ETF management team, the marketing and promotion of ETFs, and the training of professional ETF sales teams, etc., to cooperate with the refined management of the fund and carefully create ETF products.

Multi-dimensional efforts to promote the steady development of ETFs

Many fund professionals have offered suggestions, suggesting that more specialized ETF products should be provided in the future, investor education should be deepened, and the buy-side investment advisory model should be promoted, so as to encourage more investors to participate and promote the stable development of the ETF market.

To promote the healthy and sustainable development of the ETF market, Yin Hao, fund manager of the Index and Quantitative Investment Department of Bosera Fund, put forward four suggestions.

"First, in terms of product ecology, it is recommended that each fund company continue to increase its product layout efforts from the perspective of differentiation and diversity based on its own characteristics; second, many ETF transactions currently lack liquidity, and it is recommended to continue to optimize the market maker mechanism, deepen ETF investor education, and improve ETF liquidity and investor participation; third, it is recommended that fund companies and various channels continue to explore the ETF buy-side investment advisory model, take customer profitability as the goal, and provide good customer service; fourth, in terms of introducing long-term funds, it is recommended to study and promote the inclusion of ETFs in the personal pension product system." Yin Hao said.

Another industry insider made four suggestions from the perspective of ETF product supply. First, with the transformation of my country's economy, new industries and themes such as artificial intelligence, new energy, digital economy, specialization and innovation have emerged. It is recommended to increase the supply of industry-themed ETFs around national strategies and investment. Secondly, subsequent index-enhanced ETFs or actively managed ETFs can provide managers who have not been involved in or have been less involved in the ETF field in the early stage with opportunities to participate in the ETF market in a differentiated manner. Third, in line with the new trends and new features of residents' asset allocation and wealth management, the innovation of medium- and low-volatility products on the market should be strengthened. Finally, the coverage of cross-border ETFs in terms of regions and investment targets should be expanded.

In addition, Huatai-PineBridge's Tan Hongxiang also mentioned that there is still a lot of room for the growth of the ETF investor group, and some problems in the ETF field, such as the supply structure, may be solved in the process of development. "The issue of effective demand involves the evolution of society's understanding of ETFs. Especially as the product layout becomes increasingly crowded, how to activate existing products to attract new demand is a very important issue. The key lies in the gradual change of the understanding of ETFs from fund managers, sales agencies, media to investors, and the realization that such products are very different from traditional actively managed funds and are configuration tools that adapt to the subjective views of investors. Only when all parties work together to change their understanding, the market will have a more fair evaluation and reasonable expectations of the value of ETFs, which will be conducive to the sustainable growth of effective demand for ETFs."

Editor: Xiaomo

Audit: Wooden Fish

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