2 trillion news! Li Yimei of Huaxia Fund, a blockbuster voice!

China Fund News reporter Li Shuchao

On April 23, China Fund News held the 20th anniversary of ETF forum in Shenzhen with the theme of "ETF New Era, New Wave of Investment".

As the first ETF manager and the largest ETF manager in the industry, Li Yimei, general manager of ChinaAMC, attended the event and delivered a keynote speech. In her speech, she said that looking at the global capital market, ETFs are a fast-growing track, and the mainland ETF market has also burst into strong vitality. With the improvement of policy support and regulatory environment, and the favorable timing, location, and people for the development of ETFs in China, China's ETF market has also ushered in explosive growth.

She believes that as the mainland ETF market enters the stage of high-quality development from a relatively extensive development stage, there will be three major trends in the future: first, active management empowers product creation, second, competition extends from product creation to product operation, and third, from a single product to a combination and strategic integrated solution.

The following is a summary of Li Yimei's speech:

ETF is a fast-growing track, and the mainland ETF market has exploded with strong vitality

Good afternoon, I am honored to be invited to participate in the 20th Anniversary Forum of China Fund News. After listening to the speeches of the leaders, I was really full of emotion, and my thoughts were quickly pulled back to more than 20 years ago.

Today, we are here to celebrate the 20th anniversary of China's ETFs, starting with the establishment of ChinaAMC SSE 50 ETF, the first ETF in China, at the end of 2004. In 2000, the Shanghai Stock Exchange began to organize research on ETF products, and in June 2002, the Shanghai Stock Exchange launched the SSE 180 Index and announced the development of related ETF products.

At that time, the company attached great importance to the ETF project, and set up an ETF working group headed by the company's deputy general manager, and almost all product R&D personnel participated in the development of ETF.

In order to develop the SSE 50 ETF, the company has been preparing for more than three years. Behind this, it involves the business rules of exchanges, China Clearing, brokers, custodians, managers and other parties, as well as the innovation and transformation of technology and systems, which can be said to be the infrastructure construction for ETF business.

While learning from overseas institutions, we have repeatedly researched and explored how to design an investment and trading environment that can be comparable to overseas ETFs, but at the same time has Chinese characteristics and late-mover advantages. Among them, the leaders of the regulatory level have given great support and encouragement and promoted innovation, and the company and related partners have also invested huge resources.

Nowadays, everyone says that fund products with numbers or letters in their names are difficult to sell, and the SSE 50 ETF has set a precedent for having both numbers and letters, which is even more difficult. In the end, the SSE 50 ETF achieved an initial offering of 5.4 billion yuan, and the market was also experiencing the freezing point of fund issuance at that time, which can be said to be a beautiful battle, and this experience has also become an unforgettable memory for many old colleagues of the company.

Looking at the global capital market, ETFs are a fast-growing track. In the past 20 years, the average annual compound growth rate of global ETF scale has reached 22.16%, and the number of products has maintained positive growth for 20 consecutive years. From the establishment of the world's first ETF in 1993 to the ETF scale exceeding one trillion dollars for the first time in 2009, the global ETF market has experienced 17 years, and it took only 4 years to reach the second trillion dollars, 3 years to the third trillion dollars, and only 1 year to the fourth trillion dollars, and then basically broke through the trillion dollar mark a year, and in 2021, it broke through to 10 trillion dollars in one fell swoop. By the end of 2023, the global ETF market exceeded $11 trillion for the first time.

In China, we took 16 years for the first 1 trillion yuan, but we only used 3 years for the second 1 trillion yuan. Since 2021, the two-year compound growth rate of domestic ETF scale has reached 20.41%, far exceeding the 4.02% growth rate of the mutual fund market in the same period. ETFs have gradually become the focus of the fund issuance market and market funds from a small corner of the public fund landscape. At the end of last year, we witnessed milestones such as the ETF scale exceeding the 2 trillion yuan mark and the birth of the first stock ETF with a scale of over 100 billion yuan. Today, the number of stock ETFs with a scale of 100 billion yuan has increased to 5, and the first stock ETF with a scale of more than 200 billion yuan has also appeared.

With the great development of the industry, ChinaAMC's ETF business has grown from 1 with 5.4 billion yuan to 87 with more than 470 billion yuan. Twenty years ago, when ETFs took root in China, we never imagined that they would burst into such a strong vitality.

What is even more gratifying to us is that we see that the supply of domestic ETF products and the growth of holders are forming an upward spiral. Comparing the number of products and the number of holders at several key points in the size of ETFs, we also see that the increasingly diversified supply of ETF products has continuously enriched investors' choices and promoted the growth of ETF scale and number of holders, and the increase in the number of holders has further stimulated fund managers to develop and launch more innovative products. In addition, the strategic attributes of ETFs serving the country have been continuously enhanced. ETFs have become "trumpeters" of investment opportunities in the new economy and "accelerators" for the development of new quality productivity.

On the one hand, ETFs that connect assets and investors guide funds to invest in major national strategies, key areas and weak links, and play an important role in serving the real economy and economic and social development, and on the other hand, through one-click sharing of high-quality economic development results, ETFs have gradually become an important tool for residents' wealth management and medium and long-term capital allocation. In the volatile market of the stock market, ETFs have become an important "ballast stone" to promote the stable development of the market.

Passive investing is in the ascendant, and China's ETF market is experiencing explosive growth

After experiencing rapid development, everyone can't help but wonder, in the next two decades, will ETFs be a red ocean or a blue ocean?

From the experience of overseas markets, the vigorous development of passive investment represented by ETFs in the United States began in 2008. At the same time, with the improvement of market efficiency, it is more difficult to obtain excess returns, the rise of passive investment concepts, coupled with the pension market plan to expand the market scale, and the resonance of multiple internal and external factors has made the US ETF market achieve leapfrog development. At present, China's wealth management industry is also experiencing a similar transition, with the release of the bubble of rigid payment, the sharp decline in the risk-free interest rate, the reduction of excess returns on active management, the increase in the demand for residents' asset allocation, the start of the personal pension system, and the rise of passive investment, ushering in a period of development opportunities.

Especially in recent years, the improvement of policy support and regulatory environment, market volatility has stimulated the demand for hedging, the market maturity has increased, ETF investor education has been popularized, international investors have joined the market one after another, technological progress has promoted trading convenience, and product innovation and diversification have all contributed to the explosive growth of China's ETF market.

In addition, the development of China's ETF also has its own time, place, and people.

In 2004, when the first capital market "National Nine Measures" was promulgated, ETFs took root in China. In 2024, the third capital market "National Nine Articles" will be promulgated, emphasizing the establishment of a fast-track approval channel for ETFs to promote the development of indexed investment. Second, in the context of the registration-based system, the virtuous cycle of high-quality listed companies and indices provides fertile ground for the development of ETFs. In addition, there is huge room for the development of wealth management and asset management in mainland China, and the net-worth transformation of the asset management industry has brought new opportunities for the development of ETFs. Various policy support, institutional innovation and the universal application of investment consulting are expected to boost ETFs to become bigger and stronger. In terms of geographical advantages, the diversified and flexible tool attributes of ETFs also give themselves rich and expandable application scenarios. Investors can use ETFs for stock and bond allocation, industry rotation, portfolio risk management, risk calculation and income budget management. At present, some mainstream broad-based ETFs have built a derivative ecosystem including stock index futures, stock index options and ETF options, and the increasing improvement of the ecosystem has further enhanced the attractiveness of ETFs. In terms of people, the source of ETF development is still the demand of investors. In recent years, whenever the market adjusts, a large number of investors have entered the market through ETFs, which also reflects that investors are becoming more and more mature and smart to use ETF tools, especially large institutional investors such as pensions and social security funds.

With the further opening up of China's financial market, more international investors will enter the Chinese market through ETFs, further enhancing the depth and liquidity of the market. We found that last year, not only in high-performing ETFs, but also in new ETFs, foreign investors began to appear, and many well-known foreign investors such as UBS Group and Nomura Singapore occupied the top 10 holders of many A-share ETFs.

At present, there are 200 million shareholders and 700 million basic citizens in A-shares, but there are only nearly 10 million participants in ETFs, and there is still a lot of room for development in the penetration rate of ETF holders. What we need to do is to promote ETFs to more investors, capture their needs, launch suitable products, and attract more investors to participate in the ETF market.

ETFs have entered a stage of high-quality development, and there will be three major trends in the future

Although the road ahead is broad, looking back at the present, there are still many problems to be solved in the development of ETFs. We believe that ETFs in China have entered a stage of high-quality development from a relatively extensive stage of development, and with the further improvement of product saturation in the ETF market, the "hardware" difference in the product layout of major market participants is not so large, and the differentiation of fund companies may be more reflected in the number and characteristics of high-quality products, as well as the "software" of service capabilities.

Here are three trends that we believe need more attention:

The first is active management to empower product creation

When it comes to ETFs, what can't be avoided is the battle between active and passive. We have never believed that index investment is completely passive, and index investment is actually more of a test of active investment ability. Through ETFs, we present the "excess return capacity" embedded in active management to investors in a more transparent and easy-to-understand way. In our view, the empowerment of this active ability is a boost to the diversified development of ETFs, and it is also conducive to solving the current problem of ETF homogeneity.

In overseas markets, whether it is the underlying index, index providers or managers, they all show strong diversification characteristics. Although the number of products issued in the U.S. ETF market continues to increase, the phenomenon of homogeneous competition continues to decrease. Among the nearly 3,000 ETFs in the United States, the largest number of ETFs tracking the same index is 4. In terms of industry themes, managers tend to use indices of companies with different indexes or adopt a form of active management, even in similar directions. Although many fund managers cannot compete with BlackRock, Vanguard, and State Street on a broad basis, they focus on factor investment, leveraged inverse, structured income strategies, and multi-asset alternative strategies, and all of them have found customers in the market and established their own ETF ecosystems, which is also an important reason why US ETFs have always maintained their vitality.

We believe that in the future, China's ETFs will move from "benchmark index and representation index" to a new field of "investability index", from benchmark investment to an investability era.

Second, competition extends from product creation to product operation

Since 2019, the ETF market has ushered in rapid development, and it can be said that we are steadily moving towards the era of "everything can be ETF". However, it cannot be ignored that under the trend of gradual improvement of ETF categories, the strategy of "focusing on initial offerings and ignoring holdings" has begun to slowly become unworkable. The growth of ETF scale in 2023 is mostly due to the continuous marketing of existing products, with the contribution of holding as high as 85%, while the proportion of new issuance shrinks to 15%. As a result, there is a growing momentum for all parties in the market to invest resources in the ongoing operation of ETFs.

The competition of ETFs has gone from "whether there is any" to the stage of "whether it is good or not", and has extended from heavy initial offering to heavy holding. Under the environmental trend of "holding business more than initial offering", fund companies have ushered in the test of coordination of internal and external resources, and how to unite various upstream and downstream service institutions to transform complex ETF operation into more efficient and convenient services, and provide investors with a better asset allocation experience, has become a major issue in front of fund companies.

The third is from a single product to a combined and strategic integrated solution

Behind the instrumentalization of ETFs, we cannot ignore the "network effect" and "aggregation effect" of ETFs, that is, the more ETF products, the richer the basic "modules" available to investors, and the number of portfolios that can be built can finally achieve geometric multiplier growth.

Although the ETF market has grown rapidly in the past 20 years, the value of ETFs as a portfolio has not been well exploited. With the increase in the number of ETF participants in mainland China, the promotion of personal pensions, and the increasing attention of investment consultants and other institutions to ETFs, the combination of ETFs has considerable application space. In the future, the focus of ETFs is not only the "operation" of single products, but more importantly, how to launch better ETF solutions, create a "synthetic camp" with the coordination of multiple "arms", and create ETF investment solutions based on different scenarios.

Among them, the ecological model of "investment advisory + ETF" is more worthy of attention, with a clear ETF style, and the underlying transparency can solve the customer's product trust dilemma, and the investment consultant uses ETF as the underlying tool to provide customers with suitable ETF product allocation solutions on the basis of a comprehensive and in-depth understanding of customer needs, and help investors improve their investment cognition, optimize investment behavior, and improve investment experience through accompaniment.

From the experience of overseas mature markets, "investment advisory + ETF" has become the mainstream mode of wealth management. ICI statistics show that in the past decade, the proportion of investment advisers in the United States allocating ETFs has increased significantly, from less than 10% to about 40%.

In this regard, China Asset Management has also begun to explore, and the company has joined hands with investment advisory institutions and KOLs in the circle to jointly hold a number of excellent class activities, aiming to explore investment strategies and advisory services under the new market ecology with financial planners from securities firms and banks, and strive to transform fund income into real investment returns for customers.

In the future, the number of participants in the ETF ecosystem will increase, and there may even be new roles, bringing more resource endowments, and new cooperation models are also expected to be born, bringing new opportunities and challenges.

Editor: Captain

Review: Chen Siyang