Many investors will ask why the expected annualized returns of the same type of index funds are so different. Sometimes the difference in expected annualized returns of funds can reach 30 percentage points, and sometimes the difference in expected annualized returns can reach 30 percentage points. The difference in expected returns is more than 5 percentage points, and even index funds tracking the same index have a difference of 1 to 2 percentage points. Where do these differences come from and why do they arise? The following is an analysis of the expected annualized return difference of index funds from five aspects that may swallow up the expected annualized expected return.

Excessive arbitrage funds affect the expected annualized return

Excessive arbitrage funds affect the expected annualized return of the index fund. This is a very prominent problem in the past two years, and it is also the easiest An aspect overlooked by investors.

Hong Kong stocks are hot, and a number of index funds investing in Hong Kong stocks have performed outstandingly. However, in fact, if you look closely, there are also differences in the expected annualized returns. There are about 14 Hong Kong stock index products (calculated separately for graded funds), which mainly track the Hang Seng Index and the Hang Seng State-owned Enterprises Index. Among them, there are 6 companies tracking the Hang Seng China Enterprises Index, and the difference between the first and last expected annualized return on April 8 is 4 percentage points. For the eight funds that also track the Hang Seng Index, the difference between the first and last expected single-day annualized expected returns on April 8 is more than 4 percentage points. A similar difference in expected annualized earnings also appeared on April 7, and gradually narrowed on the 9th and 10th. In February and March, the expected annualized expected yields are basically in line.

Why does this difference occur? According to analysis by industry insiders, this difference is mainly due to investors rushing to buy Hong Kong stock funds in the secondary market last week, which led to a surge in secondary market prices. Hong Kong stock funds generally showed a substantial premium of more than 20%. Many arbitrage funds poured into these funds, which may Diluted expected annualized expected return.

In fact, this situation often occurs in tiered fund premium arbitrage. During November and December last year, the premium rate of a number of tiered index funds exceeded 20%, which also led to the influx of arbitrage funds and the huge difference in the single-day expected annualized return rate of many index funds.

Therefore, investors must pay attention to the "missing" risk brought by this type of arbitrage funds. Substantial arbitrage of funds in the short term will affect fund positions. Assuming it is a 100 million fund, if the newly purchased funds on that day are 100 million yuan, these funds often require T+2 or T+3 to fully open a position. If the position tracking process increases by 3%, it may be because the fund's position has declined, causing the net value to increase by only about 2%, underperforming the index, which will also affect the final annualized expected return of arbitrage.

Therefore, it is best to choose products that are relatively stable in size and that are not too intensive for arbitrage funds due to huge purchase restrictions, or choose larger-scale tiered funds.

The difference between different indexes on the same theme is nearly 30 percentage points

It is also a pharmaceutical industry index fund, how come the maximum performance difference is close to 30 percentage points? This is actually a difference caused by tracking different indexes under the same theme.

Take ETF products as an example. There are 8 ETFs with "medicine" in the name, and the best performing one is the 500 Medical and Health ETF, with an expected annualized expected return rate of 58.28%, which is slightly inferior. The expected annualized expected return rate is 28.47%, and the difference between the two reaches 29.8 percentage points.

This difference is actually mainly due to the different tracking indexes. The tracking target of the Southern CSI 500 Healthcare ETF is the CSI 500 Healthcare Index, which gathers Chinese stocks with high growth potential in the Shanghai and Shenzhen stock markets. Small medical and health enterprises have obvious growth advantages. The latter tracks the CSI 300 Pharmaceuticals and represents relatively strong and advantageous pharmaceutical companies in the industry. This year, the small and mid-cap style is dominant, so the performance of the Southern CSI 500 Medical and Health ETF is even more outstanding.

It is worth noting that the 8 ETFs also named "pharmaceuticals" track 6 different indexes, so the performance of these funds varies greatly.

Similarly, there are 5 ETF products with "consumption" in their names, all tracking different indexes. The difference in annualized expected returns between the best and worst performers this year has also reached 17 percentage points. This situation also appears in ETFs with the word "financial real estate" in their names: the difference in the maximum expected annualized return rate of the five ETFs with this word this year is more than 12 percentage points.

Industry insiders said that the number of industry index funds is increasing day by day. Although they track the same type of industry, tracking different indexes will also lead to large differences in the final actual expected annualized expected returns. Investors should identify the constituent stocks, heavyweight stocks, and style characteristics of the underlying index before choosing. It is worth mentioning that if investors are particularly optimistic about tracking the same index, they can choose leveraged B-class funds to invest.

Enhanced is a "double-edged sword"

There are many positive effects this year

Although tracking the same index, there are also differences between pure passive and enhanced, and enhanced Model is a "double-edged sword", which may increase the expected annualized expected return, or may also devour the expected annualized expected return.

The so-called enhanced fund refers to "passive investment as the mainstay and active investment as the supplement". Generally, 80% of the positions are allocated according to the index, and the remaining 20% ??of the positions are actively managed in order to enhance the expected annualized expected return. of funds.

From the actual operation point of view, the positive effect is more than two years. Data show that as of April 10, there were 25 products with enhanced index fund range net values ??exceeding the benchmark, while 15 products were below the benchmark. Last year, 22 products outperformed performance benchmarks, while only 13 products failed to exceed the benchmarks.

This is also one of the reasons why there are differences in the expected annualized returns of the same index fund. Taking the Xingquan CSI 300 Index Enhanced Fund as an example, the expected annualized return last year was 57.162%, while the CSI 300 Index rose only 51.66% during the same period. Many index funds that purely track the CSI 300 rose by around 50%. However, there is also an enhanced fund that tracks the GEM, with an expected annualized return of 68%, while the GEM rose by 75.15% during the same period, and the ETF that also tracks the GEM rose by 70.55%, which is a large deviation.

Investors need to note that from historical data, enhanced index funds generally lose to pure index funds in bull markets, while enhanced index funds perform better in bear markets. In addition, with the in-depth application of stock index futures and margin trading businesses, enhanced index funds have more investment strategies and enhancement methods, which are expected to increase the expected annualized expected returns. Investors are best to choose products managed by fund managers with strong quantitative investment research capabilities.

In addition, in terms of fund management fees, the average fee for enhanced index funds is 1%, and the average fee for standard index funds is 0.6%.

Equal weighting also has an impact

When tracking the same index, whether it is "equal weighting" also affects the expected annualized expected return, and the impact is significant.

Data show that there are about 23 "equal weight" varieties of all index funds (A and B count as two), mainly CSI 300 equal weight, 180 equal weight, SSE 50 equal weight, small and medium-sized stocks Board equal rights and so on.

What is "equal weight"? Take the Boshi S&P 500 ETF and Dacheng S&P 500 equal weights as examples. The former tracks the S&P 500 and adopts the market capitalization weighting method; while the latter tracks the S&P 500 equal weights, which is also the S&P 500, but gives each index Constituent stocks have the same weight, and regular adjustments are made to ensure equal weighting of individual constituent stocks.

What are the benefits of "equal weighting"? The equal-weighted index relatively increases the weight of small and medium-sized market capitalization stocks, and the fluctuation range is usually greater than that of the market capitalization weighted index. If the market is biased towards small and mid-cap stocks, the expected annualized return rate of equal weighting is higher.

Take the BOC CSI 300 equal weight as an example. The fund is expected to have an annualized expected return of 31.037%, while the CSI 300 has an increase of 22.94%. An ordinary CSI 300 index fund is expected to have an annualized return this year. The expected rate of return is about 22%, and the difference in expected annualized returns between the two is 10 percentage points. Similarly, the Invesco Great Wall 180 Equal Weight ETF rose by 28.27%, while an ordinary index fund that also tracks the Shanghai Stock Exchange 180 has an expected annualized expected return of only 18.68%. There is also a big difference.

However, if the market environment for large-cap blue-chip stocks in the second half of last year was biased towards large-cap blue-chip stocks, the expected annualized return rate of the "equal weight" category would be lower than that of ordinary index funds. Looking at overseas markets, "equal weights" tend to have this performance as well. If investors are optimistic about blue chip stocks with small and medium market capitalization, they can choose "equal weight" funds under the same circumstances.

The size of tracking error reflects management ability

An important direction in examining index funds is to examine their tracking error. This is a reflection of management ability. Investors are best to choose long-term tracking errors that are small. variety. In particular, investors who make fixed investments should pay attention to the fact that in the long run, the gap in expected annualized returns will be magnified.

An index fund manager in Shanghai once said that controlling tracking error is a basic goal of index funds and the fundamental starting point for index fund design. If the range set in the prescribed range is too large, it may be the result of the fund manager's management. Less capable. Data shows that general index fund contracts require that the tracking error be within 3% to 4%, and some require that the average daily tracking error of index funds does not exceed 0.35%. Investors are best to choose pure index funds with a daily tracking error within 0.2% or an annual tracking error within 1.5%. It is better if the annual tracking error is within 1%.

From the actual operation point of view:

First, the tracking error of index funds owned by large fund companies or some fund companies with quantitative advantages is small. This is mainly because fixed fees such as management fees and custody fees also affect tracking errors, and large fund companies have stronger negotiating power and often break through in fee rates. They are all CSI 300 index funds, such as Dacheng, Guangfa, ChinaAMC and other funds. If held for one year, the total fee rate is about 1.2%, and some funds are 1.5%.

Second, regular adjustments to index constituent stocks will also have a greater impact on tracking errors, which reflects the management capabilities of the fund company.

Third, index fund portfolios must also hold certain cash assets to cope with redemptions. Relatively speaking, ETF funds that use physical redemptions for primary market transactions have certain advantages. Therefore, from the perspective of tracking error, ETF is the best variety.

In addition, the foundation encounters some investment restrictions, resulting in differences in the portfolios of different funds.

For example, a fund cannot invest in stocks of related parties such as custodian banks and manager shareholders, and these stocks happen to be constituent stocks of the index tracked by the fund. This will have a certain impact on the expected annualized expected return.

It is recommended that investors consider the following five points before buying index funds. These five points are the key factors that affect the expected annualized return of index funds:

1. Turbulence The incoming arbitrage funds may cause fund managers to have tracking errors in the short term due to the slow speed of opening positions.

2. Index constituents in the same industry with different compilation methods are very different. Since there are also style differences within the industry, the expected annualized expected returns of those with heavy exposure to small caps and those with heavy exposure to large caps are different.

3. Improper index enhancement management method, the expected annualized expected return may be worse than no enhancement.

4. The buying weights of index constituent stocks are different, and the expected annualized return of equal-weighted funds is very different from that of unequal-weighted index funds.

5. The fund manager’s quantitative management capabilities and expenses will also affect the expected annualized return.

Introduction to reading

The Baifa 100 Index Fund will pay dividends and resume subscriptions today

List of 2015 Index Fund Expected Annualized Return Rankings