Once upon a time, many investors believed that "passive products are automatically tracking the performance of indices" and "passive products of the same type should perform consistently." Is this really the case?

In the recent significant market fluctuations, a considerable portion of passive products have shown a considerable deviation between the net value of the fund and the performance of the index. On October 15th, the first batch of China Securities A500 ETF funds listed for trading also showed significant differences in net value among them, revealing the peculiarities behind passive products.

Reporters from China Securities News learned through interviews and research that index products are essentially passively tracking index changes for portfolio adjustments. However, the judgment and decision-making of fund managers regarding the timing of construction are also very important. "Passive products are not completely passive," and if the construction rhythm is misjudged, it will lead to abnormal performance of the fund's net value. Industry insiders suggest that the investment operations of passive products actually need to further rely on the investment research capabilities of fund companies, or they can be constructed in stages to reduce the impact on the fund's net value.

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Peculiarities seen in fluctuations

"Passive products are not completely passive in operation, and the judgment of fund managers plays a more critical role in grasping the construction rhythm," a fund manager admitted. The net value deviation and differences that have appeared in some index fund products recently are mostly related to the fund's construction rhythm.

For example, in the market rise on October 8th, more than 200 ETF feeder funds across the market (calculated separately for different shares) had a deviation of more than 1% from the performance benchmark (mostly tracking the index return rate × 95% + the bank's demand deposit interest rate × 5%). Among them, more than 50 funds had a deviation of more than 3%, which is far beyond the requirement that many passive products have a daily tracking deviation of no more than 0.35%.

In response to this, several fund insiders stated that this situation was mainly caused by a large amount of new subscription funds for ETF feeder funds at that time. On the one hand, after the new subscription funds entered the market, due to many ETFs and target index constituent stocks hitting the daily limit, the feeder funds could not timely purchase and construct with the newly entered funds, and could only temporarily store them in cash, failing to enjoy the day's increase and diluting the increase that the fund should have had; on the other hand, facing a short-term market surge, some fund managers may also worry about entering at high prices and choose to temporarily wait and watch for a better opportunity.

Taking the first batch of China Securities A500 ETFs listed on October 15th as an example, although they all track the China Securities A500 index and were issued and listed on the same day, the net value performance of different products showed significant differences. The day before the listing, the unit net value of Huatai-Pine A500 ETF, which was the highest, reached 1.0086 yuan, while the lowest, Taikang China Securities A500 ETF, was only 0.9512 yuan.

Ten products tracking the same index went into battle together, and many investors originally thought that the performance of different products should be consistent, but they found that the results were quite different, which also triggered some complaints and dissatisfaction. Especially for some funds with lower unit net values, they face greater customer pressure.

The key is the construction rhythm.The primary reason for customer dissatisfaction is that investors subscribed at a price of 1 yuan per share during the fundraising stage. However, before the fund has even been listed, its net value has already fallen below 1 yuan. This means that after the funds invested during the subscription period are locked in for a while, not only have they not made a profit, but they have actually incurred a loss. Taking the Taikang China A500 ETF as an example, if an investor subscribes for 1 million yuan, the principal had shrunk by approximately 48,800 yuan as of October 14.

The unit net value data updated on October 14 shows that the unit net value of 8 China A500 ETF products has fallen below 1 yuan. It is understood that on the evening of the 14th, in response to the fund's net value being lower than that of other products in the same batch, a fund company apologized to customers late at night and explained the reasons behind it: "Due to the construction period coinciding with a market fluctuation phase (with extreme situations such as index limit-up and callbacks occurring on the same trading day), it increased the difficulty of construction, and the portfolio also experienced significant changes in net value due to slight differences in construction timing."

On October 15, another fund company also apologized, admitting that the fund manager was overly optimistic during the construction phase and inadvertently built at a high position. The company will stabilize the scale by preparing incremental funds and other methods, allowing the fund's unit net value to return to above 1 yuan as soon as possible.

Data disclosed in the fund listing announcement shows that there is indeed a significant difference in the construction pace of the 10 China A500 ETFs. As of October 8, the highest stock position among the 10 ETFs reached 98.78%, while the lowest was only 44.87%, with a gap of more than 50 percentage points.

Generally speaking, the ETF construction period is from the establishment of the fund to the listing of the fund. In addition to the Harvest China A500 ETF, which was established on September 20, most of the other funds were established after September 24. Coupled with the Harvest China A500 ETF's first disclosure of net value on September 30, this means that some positions of the 10 ETFs may have been established between September 24 and October 8.

According to the fund contract requirements, ETFs need to complete construction before listing, that is, the stock position should not be lower than 90%. As of October 8, there were 7 products that had not yet met this requirement and needed to complete construction within the next 4 trading days. Since the market回调ed thereafter, it also provided a certain cost averaging space for them. For example, the Southern China A500 ETF and the Huatai-Pine Rich China A500 ETF, which had a unit net value above 1 yuan before listing, had positions of about 50% on October 8. However, the China A500 ETF, which had a position of over 90% on October 8, had a unit net value of less than 1 yuan on October 14.

It is necessary to further refine the construction ability.

A person close to the relevant fund company revealed: "The unit net value of the China A500 ETF under its management is above 1 yuan, which may also be related to the early and rapid construction of the fund." In addition, some fund companies have also used their intelligent index investment and quantitative investment methods during the construction process to reduce transaction costs and control tracking errors.

Industry insiders analyze that although most of the first batch of China A500 ETFs were constructed between September 24 and October 8, due to the large market fluctuations at that time, which day to enter the market is very important. For example, the performance of ETFs with most positions entering the market on September 24 and those with most positions entering on October 8 will be very different. Behind this, it is exactly the construction ability of the fund manager that is most tested.

Although from the construction situation of this batch of China A500 ETFs, the relatively late construction has allowed some funds to perform better. However, looking at the overall market, it seems that building a little later cannot become an effective way to resolve this strange situation.Recently, there have been no shortage of funds that have seen significant deviations in net value due to "delayed" construction. For instance, an ETF product tracking the CSI All-Share Public Utilities Index failed to complete its construction after its establishment in mid-September. As the listing date on October 9th approached, fearing that a large number of target stocks would hit the upper limit and thus be unable to complete the construction, the fund chose to buy in one go in the morning of October 8th. Subsequently, it encountered a significant market correction, leading to the unit net value falling below 1 yuan on the same day and significantly underperforming the index.

Careful analysis by China Securities Journal reporters has revealed that it is not uncommon for ETFs to see their unit net value fall below 1 yuan before listing, but this issue has not received much market attention in the past. Recently, due to the rapid increase in investors' attention to the market, significant market fluctuations, and the concentrated debut of the first batch of CSI A500 ETFs with a scale of 20 billion yuan, this issue has begun to gain industry attention.

Industry insiders believe that passive product fund managers should pay more attention to improving the fund's construction capabilities under the wave of rapid development in index investment, and minimize the negative impact of the "not entirely passive" elements in passive products. Some fund managers believe that not filling the position quickly in one go and constructing the position in stages in a more moderate manner may be able to reduce the impact on the fund's net value to a certain extent.