First of all, the underlying index needs to conform to the market style. The indexes tracked by ETF include broad-based indexes such as CSI 300 and CSI 500, which have a wide investment range and are distributed in different industries and themes. There are also industry or theme indexes with narrow investment scope, such as securities, medicine, military industry, 5G and other industries or theme indexes. When the market is structural, industry or theme index has more investment opportunities than broad-based index. However, the choice of industry or theme index requires a certain understanding of a certain industry or theme, because once the judgment is wrong, the industry or theme index will fall more than the broad-based index because the positions are too concentrated. When the market is dominated by white horse blue-chip stocks, blue-chip ETFs such as SSE 50ETF and CSI 300ETF should be selected to share the gains from the market rise.
Second, the bigger the fund, the better. Generally speaking, the larger the ETF is, the better its liquidity will be, and the large transactions of investors in the secondary market will not be affected by the lack of liquidity. In addition, the larger the scale, the smaller the impact on the tracking error when the fund applies for redemption in large amount.
Third, the smaller the tracking error, the better. Tracking error is the standard deviation of tracking deviation, that is, the standard deviation of the difference between the net return rate of index fund and the return rate of tracked index. As a passive index fund, the goal is to obtain the same income as the index, so the smaller the tracking error, the higher the tracking accuracy, and the better the performance of the representative in similar products.