firstly, ETF overcomes the shortcomings of closed-end fund discount trading. Closed-end fund discount transaction is the same feature of global financial market, and it is also a phenomenon that classical financial theory can not explain well so far, which is called "the mystery of closed-end fund discount". This phenomenon is particularly prominent in China. At present, the average discount rate of 54 closed-end funds listed on the Shanghai and Shenzhen stock exchanges in the secondary market is close to more than 3% relative to their unit net value. Due to the discount trading of closed-end funds, the development of global closed-end funds is shrinking, and some of its original advantages are also covered up. ETF funds can be traded in the secondary market, and they can also directly purchase and redeem a basket of stocks from fund managers, which makes it possible for investors to arbitrage in the primary and secondary markets. It is the existence of this arbitrage mechanism that inhibits the deviation between the secondary market price and the net value of the fund, so that the transaction price in the secondary market is basically consistent with the net value of the fund.
Secondly, compared with open-end funds, ETF funds have the characteristics of low transaction cost, convenient transaction and high transaction efficiency. At present, investors invest in open-end funds by purchasing and redeeming funds from fund management companies through banks, brokers and other consignment agencies. Generally, the transaction fee of stock-based open-end funds is above 1%, and the redemption money will not arrive until 3 days after redemption. Buying different funds requires going to different fund companies or banks and other agencies, and the transaction convenience is not too high. However, if investors invest in ETF funds, they can trade directly through the exchange according to the public quotation, just like stocks and closed-end funds, and the funds will arrive the next day.
finally, ETFs generally adopt a completely passive indexation investment strategy to track and fit a representative underlying index, so the management fee is very low and the operation transparency is very high, which allows investors to invest in the component stocks in a basket of underlying indexes at a low cost, so as to fully diversify their investments and effectively avoid the unsystematic risks of stock investment.
precisely because of the above-mentioned advantages, ETF has become the fastest-growing financial product in the world in the past 1 years: American Stock Exchange (AMEX) launched Standard & Poor's Index Depositary Receipt (SPDRs) on January 29th, 1993. Since then, ETF products have developed rapidly in the United States and even around the world. As of June 3, 24, there were 34 ETFs in the world, with assets of US$ 246.4 billion.
At present, the SSE 5ETF designed in China is an open index fund that tracks the SSE 5 Index and is listed on the exchange. It is managed by Huaxia Fund Management Company and adopts a completely passive management mode to fit the SSE 5 Index.
The trading system design of SSE 5ETF also provides opportunities for investors who meet certain trading conditions to participate in arbitrage trading. At the same time, it is worth noting that SSE 5ETF has also realized the T+ transaction of SSE 5 Index under the existing institutional framework.
1. SSE 5 Index constructs the value base of SSE 5ETF
SSE 5ETF is essentially a completely passive index fund, and its investment income ultimately comes from the growth of SSE 5 Index. From our research, the constituent stocks of SSE 5 Index have the characteristics of "blue chips". From the perspective of industry representativeness, scale and liquidity, it also represents the international mainstream market value orientation. From the perspective of investment value, the advantages of SSE 5 Index are very obvious. For investors, SSE 5ETF provides a very convenient way to buy and sell SSE 5 index.
Although the number of sample companies in SSE 5 is less than 3.67% of all 1365 listed companies (September 3, 24, all A-share companies), they account for 31.43% of the total listed net assets and 47.59% of the total assets. It also created 45.64% net profit of the whole listed company and 45.8% net profit after deducting non-recurring gains and losses. Judging from the average profit rate, main business income, average P/E ratio, return on net assets and other indicators, the constituent stocks of SSE 5 Index are undoubtedly the best listed companies in Shanghai.
Most of the companies selected in SSE 5 are representative leading enterprises in the industry, including leading enterprises in petrochemical, banking, shipping, steel, electric power, telecommunications, automobile, pharmacy, household appliances and other industries, such as China Petrochemical, China Merchants Bank, Shanghai Pudong Development Bank, Changjiang Power, Shanghai Airport, China Shipping Development, baoshan iron & steel, Wuhan Iron and Steel, Huaneng International, China Unicom, Shanghai Automobile, Huabei Pharmaceutical, etc. The selection of sample stocks has fully considered industry representativeness, market size, trading activity and operating performance.
for investors, SSE 5ETF provides a very convenient way to buy and sell SSE 5 index. Investors can freely enter and exit the ETF secondary market, just like buying and selling stocks. Investors will no longer have the situation of "earning the index and accompanying the money". For investors, they can adopt the long-term investment strategy of buy and hold, or they can operate the band to obtain the spread income.
second, arbitrage trading-the important vitality of SSE 5ETF
arbitrage trading is one of the important manifestations of ETF vitality. The continuous subscription and redemption mechanism of SSE 5ETF provides a way for investors with a certain asset scale to participate in arbitrage.
the basic principle of arbitrage is shown in the attached table. When the ETF trades at a premium, that is, when the secondary market price is higher than its net value, the primary market participants of the ETF can purchase the SSE 5ETF in the primary market by buying the same combination as the basket of shares announced by Huaxia Fund on the same day, and then sell the corresponding share of the SSE 5ETF on the exchange. In this way, if the transaction cost is not considered, the cost for investors to buy shares in the stock market should be equal to the unit net value of ETF. Since ETF is traded at a premium in the secondary market, investors can get the difference.
however, when ETF trades at a discount, that is, when the secondary market price is lower than its net value, the arbitrage trader can obtain arbitrage income through the opposite operation. That is, participants in the primary market of ETFs can buy SSE 5ETF in the secondary market, redeem the same number of ETFs in the primary market (and get the portfolio stocks representing ETFs), and sell the redeemed stocks in the secondary market. If transaction costs and liquidity costs are not considered, then the value of the redeemed shares sold by investors in the secondary market should be equal to their net fund value, and since ETFs are traded at a discount, arbitrageurs can profit from them.
Of course, since the subscription and redemption of ETFs must reach a certain scale or above, for example, SSE 5ETF require more than 1 million shares, ordinary investors with smaller funds cannot participate in the arbitrage trading of ETFs. However, investors with a relatively large amount of funds can fully participate.
third, T+-the focus of attention
it is worth noting that SSE 5ETF has realized t+ trading under the existing trading system framework. According to Article 22 of the Detailed Rules for the Implementation of Trading Open Index Fund Business of Shanghai Stock Exchange, the ETF fund shares bought on the same day cannot be sold, but can be redeemed; ETF fund shares purchased on the same day can be sold, but cannot be redeemed; Stocks bought by investors on the same day may not be sold, but can be used to purchase ETF fund shares; Shares obtained by investors from redeeming fund shares on the same day may be sold, but they may not be used to purchase ETF fund shares. Therefore, investors can realize T+ trading on the SSE 5 Index on the same day. In this sense, SSE 5ETF has achieved a major breakthrough in China's existing trading system.
in addition to the uniqueness of ETF's operating mechanism compared with other fund products, the target of ETF products or the characteristics of ETF as an index fund are the fundamental reasons for ETF's great development in the past ten years. Therefore, whether institutional investors or ordinary investors, the ultimate investment value of ETF should be the value of its internal subject matter. From the perspective of China's market, with the gradual development and maturity of the market, index funds should gradually show its advantages. In essence, SSE 5ETF provides investors with the opportunity to buy and sell SSE 5 index as well as stocks. Therefore, for investors, if they have enough confidence in the future development of China, they should buy SSE 5ETF as a blue chip.