Index Fund, as the name suggests, uses a specific index (such as the CSI 300 Index, S&P 500 Index, Nasdaq 100 Index, Nikkei 225 Index, etc.) as the underlying index, and uses The constituent stocks of the index are the investment objects. A fund product is constructed by purchasing all or part of the constituent stocks of the index to track the performance of the underlying index. Generally speaking, the purpose of index funds is to reduce tracking error and make the change trend of the investment portfolio consistent with the underlying index, so as to obtain roughly the same rate of return as the underlying index.

The investment operation of index funds is a process of tracking the index by purchasing the constituent stocks (or other securities) of the index, which mainly includes position building, reinvestment and tracking adjustments. The specific operation process can be summarized into the following aspects:

First, the selection of the underlying index to be tracked

Different index funds have different return and risk expectations, so they must also Choose different underlying indexes to meet the needs of fund investment. You can choose an index that reflects the entire market as a tracking target to obtain the average return of the market, or you can choose a specific type of index (such as a large-cap stock index, a growth index, etc. ) as a tracking target to obtain corresponding investment returns while bearing corresponding risks.

Second, construction of investment portfolio

After determining the underlying index, the corresponding investment portfolio can be constructed and the various securities that constitute the corresponding index can be purchased in a certain proportion. Taking into account factors such as the cost and efficiency of building a position, methods such as complete replication, stratified sampling, and industry matching can be used to construct an investment portfolio. Full replication is a method of constructing a portfolio based entirely on the various securities that make up the index and their corresponding proportions; both stratified sampling and industry matching use statistical principles to select the most representative part of the securities that make up the index. rather than all securities used to construct a fund's portfolio.

Third, adjustment of portfolio weights

Usually, the constituent stocks of the underlying index will be adjusted regularly and irregularly, and the addition of new stocks and the issuance and allotment of original stocks will Factors such as these will cause the weight of each component stock in the underlying index to change. Therefore, index funds must also make corresponding adjustments in a timely manner to ensure the consistency of the fund portfolio and the index.

Fourth, monitoring and adjustment of tracking error

Tracking error is the difference between the return of an index fund and the return of the corresponding underlying index. Due to the limitations of transaction costs and trading systems, the income of any index fund cannot be completely consistent with the income of the underlying index. Fund managers need to measure and monitor this difference in a timely manner to ensure that this difference is stably maintained within a certain range. within. If abnormal deviations occur, fund managers should promptly adjust the index fund's investment portfolio plan after fully analyzing the reasons.