Index funds are divided into passive index funds and active index funds. Passive index funds, which completely copy or mostly copy the constituent stocks of the index, try to achieve the same income as the index. The following is the difference between enhanced funds and passive funds compiled by Bian Xiao, for reference only, and I hope it will help you.
Which is better, enhanced fund or passive fund?
Enhanced index fund is the most asset tracking index. On this basis, some funds are actively invested by fund managers in order to track the index and obtain higher-than-market returns.
Because this kind of fund has joined the operation of the fund manager, the income of the fund depends not only on the rise and fall of the index, but also on the ability of the fund manager.
Then, let's look at the differences between the two funds.
1. number of funds
According to the data of Tian Tian Fund Network, up to now, there are 58 enhanced index funds and 578 passively managed index funds. In terms of quantity, enhanced index funds are still relatively few, and relatively speaking, the choice space will be greatly reduced.
2. Management fees and custody fees
As we all know, investment funds need costs, and passive index funds completely copy index stocks and rarely change positions; Enhanced index funds, in order to improve returns, fund managers frequently change positions and stocks, and the transaction cost is relatively high.
In addition, passive index funds have fewer human interference factors, and management fees and custody fees will be less; Enhanced index funds, run by fund managers, have higher management fees and custody fees.
For example, the management fee and custody fee of Shenwan Lingxin CSI 300 Index Enhancement (3 103 18) are 1% and 0.18% respectively; The management fee and custody fee of Xingquan CSI 300 Index (163407) are 0.8% and 0. 15% respectively.
Someone is helping you manage the fund, so it's natural to charge more.
3. Investment strategy
Passive index funds are all or most of the constituent stocks that track the index, with high transparency and positions, and less interference from human factors, so the error of such index funds is relatively small.
Enhanced index funds, otherwise most assets will track the index, but fund managers will choose to invest in optimistic stocks or sectors to enhance their income, so they are greatly influenced by fund managers.
So, the most important question is, can enhanced index funds really improve returns?
Is the fund strong or not?
The goal of the enhanced index fund is to surpass the performance of the index trend and set higher goals. Enhanced index funds are more active on the basis of following the index, plus the operations done by fund managers, so they are called enhanced. But whether the final result is really "enhanced" is related to the personal ability of the fund manager, so it is impossible to judge whether the fund is enhanced without the fund manager.
Even if the market is not good, if an index falls by 20% a year and the corresponding enhancement fund only falls by 10%, we can say that this enhancement fund is good; If the market is good, an index rises by 100% a year, but the corresponding enhanced fund has only 80% profit, then this enhanced fund is not good either.
Therefore, to judge whether an enhanced index fund is good or not, investors should know the past performance of the fund manager in detail. At the same time, the trend of the enhanced index fund is unchanged, that is, its performance depends on the trend of the index, so the fundamental choice of the enhanced index fund is to choose the index.
What are the classifications of enhanced index funds?
As we know, the index fund is a fund that builds a portfolio with the constituent stocks of the index as the investment object.
For example:
The index foundation tracking the Shanghai and Shenzhen 300 Index builds its own portfolio according to the types and proportions of stocks in the Shanghai and Shenzhen 300 Index.
The index foundation that tracks the GEM index builds its own portfolio according to the types and proportions of stocks in the GEM index.
In order to make you understand better, let me make an analogy. The operation of index funds is like copying homework. How many points the teacher will give your homework depends mainly on the quality of your copied homework. A completely plagiarized index fund is equivalent to plagiarism. You write what others write. Finally, the teacher gave you a score similar to that of the person you copied. However, due to mistakes, beautiful words and ugly words, the final score of our homework may be higher or lower than the copied samples, which is the legendary index fund tracking error.
However, not everyone will completely copy other people's homework. They may feel that they have better answers to some questions, so they will selectively do a few questions by themselves. Some fund managers think so. Although the fund mainly copies the constituent stocks in the index, it can increase some stocks it is optimistic about, or increase some stock positions and reduce some stock positions according to its own judgment. This kind of index fund is called enhanced index fund, which is "reformed" according to its own judgment on the basis of completely copying the index.
If the fund manager's judgment is right, then the income of this enhanced index fund will exceed the index. If the judgment is wrong, then the performance of this fund is not as good as a completely copied index. Just like a person who copies homework, the score may be more than the sample or less than the sample.
Historical performance of enhanced index funds
So, is it wise or smart for the fund manager who "copied his homework" to change some parts? Let's take a look at the historical performance of enhanced index funds. In June this year, orient securities Research Institute released a statistical data, comparing the performance of enhanced index funds and indexes. The main enhanced index funds in the market are tracking the CSI 300 Index and CSI 500 Index. The enhanced index funds tracking the CSI 300, except the Penghua CSI 300 Index Enhanced Fund, which was established less than half a year at that time, remained 27, among which 25 funds outperformed the CSI 300 Index, accounting for 92.59%. Moreover, five of them have obtained an excess return of more than 10%, which is far better than the index. However, 17 only tracks the enhanced index funds of the CSI 500 Index. Except for the four funds established less than half a year at that time, all the other 13 funds outperformed the index of the same period, accounting for 100%. There are 3 animals with excess returns above 10%, accounting for 23%.
From the situation after the establishment of all enhanced funds, 87% of the enhanced index funds outperformed the index they tracked. These funds were established at different times, but the overall data shows that the enhanced fund managers who selectively "copy their homework" are basically not smart, and indeed get better results than the samples.
If the above results may be disturbed by the calculation time of income, let's look at the index funds in the last three years and the last six months. All the funds tracking the Shanghai and Shenzhen 300 Index are ranked in the top 10.
The performance in the last three years is the long-term performance of the fund, and the performance in the last six months is the short-term performance of the fund. In addition, A-shares have experienced a round of plunge, so it is also the performance of the fund under unfavorable market conditions. No matter in the past three years or nearly half a year, the enhanced index funds have the upper hand in the top ten, so the data shows that the performance of the enhanced index funds is better than that of the fully replicated ones under long-term, short-term and unfavorable market conditions. Based on all the data, we can see that enhanced index funds have indeed created more achievements than index funds and fully replicated index funds. In fact, Buffett strongly recommends completely passive index funds, but in China, enhanced index funds often get excess returns, mainly because the information of A shares is more asymmetric than that of US stocks.
Therefore, fund managers can make use of their information advantages to get more benefits than the index.
However, because the enhanced index fund mainly tracks the index, it still has the advantages of index fund: the performance of the fund will not run counter to the market trend because of the misjudgment of the fund manager, and the cost of the fund is relatively low.
How to Choose Enhanced Index Fund
If you just want to follow the market and don't want to be influenced by people's judgment, you can choose a completely passive type, such as directly investing in the Shanghai and Shenzhen 300, CSI 50 or other industry indexes. If you think there is information asymmetry in China A-share market, investors who want to get some excess returns can consider enhanced index funds. After all, the data prove that these funds do perform well.
How to choose an enhanced index fund?
The first step is to choose your own optimism index. After all, the most important factor that determines the direction of the fund is the index tracked by the fund.
If you are optimistic about the broader market, choose the Shanghai and Shenzhen 300 Index; if you are optimistic about small and medium-sized stocks, choose the Shanghai Stock Exchange 500 Index; if you are optimistic about the GEM, choose the index of specific industries.
The second step is to select the fund after selecting the index.
The reason why we choose the enhanced index fund is to get some excess returns, so we should choose a fund issued by a powerful fund company. The fund manager is experienced and has excellent and stable past performance.
However, there are not many enhanced index funds for some indexes, so it may not be necessary to choose them.
At the same time, I would like to remind you that although the overall performance of the enhanced index fund is better than that of the fully replicated index fund, if the enhanced index fund corresponding to our optimistic index does not meet the selection principle I mentioned, you can directly choose the fully replicated index fund.