Seven index investment experts talk about the development prospects of ETFs, and the investment scene continues to expand, and the scale of ETFs is expected to reach 4 trillion yuan

China Fund News reporter Liu Ming and Cao Wenjing

On April 23, the 20th Anniversary Forum of "ETF New Wave of Investment" hosted by China Fund News was held in Shenzhen.

Seven quantitative and index investment experts and wealth leaders from funds and brokerages discussed the theme of "ETF Power: Exploring the New Ecology of Chinese Investment".

The roundtable discussion was moderated by Xu Zhiyan, Assistant General Manager and Senior Director of Index and Quantitative Investment Department of Huaan Fund, and attended by Lin Weibin, General Manager of Index Investment Department of E Fund, Luo Guoqing, Head of Index Investment Department of GF Fund, Liu Jiayin, Head of Index Investment of Harvest Fund, Gong Tao, Director of Index Investment Department of China Southern Asset Management, Chen Long, Deputy General Manager of Quantitative and Derivatives Investment Department of Penghua Fund, and Li Wanqing, Head of Individual Trading Solutions Team and Executive General Manager of CICC Wealth Products and Solutions Tribal.

They said that in the past three years, the scale of exchange-traded funds (ETFs) has grown rapidly from 1 trillion yuan to 2 trillion yuan, the use of indexed investment scenarios has been expanding, and ETFs have become more and more deeply involved in the transformation of wealth management in mainland China. In the future, the diversification, stratification and specialization of passive investment will give it more room for development.

An important tool for residents' asset allocation

In the future, the scale is expected to continue to reach new highs

Xu Zhiyan: What are the real driving factors behind the rapid development of ETFs?

Lin Weibin: I think it is the continuous release of residents' demand for wealth management that has promoted the development of ETFs. In the past 20 years, with the growing demand for wealth management among mainland residents, ETF and other index products have become an important tool for ordinary investors to allocate assets by virtue of their openness and transparency, stable style, low fees, convenient investment and diversified strategies.

In addition, the equity market has continued to fluctuate in recent years, and the instrument attribute of ETF bottoming has been strengthened. In the past, when the market was at the bottom of the range, many investors would use ETFs to grasp the phased rebound of the market or make long-term allocation, and the overall share of the product showed a certain inverse relationship with the market ups and downs. At present, the equity market is in a volatile stage, and ETFs have become an important tool for many investors to allocate to the equity market.

In addition, the continuous improvement of market efficiency has further opened up the development space of ETFs. The reform of the capital market has been deepened, the efficiency of market pricing has been continuously improved, and the recognition of index investment has been continuously improved. According to statistics, the proportion of individual stocks that can outperform the index has been declining in recent years, and the trend of investors shifting from individual stock investment to ETF investment is increasing.

At present, the scenarios of investment advisors and fund of funds (FOF) using indexed investment are constantly expanding, investors are gradually shifting from short-term trading to long-term investment, from concentrated investment to portfolio investment, and ETFs are becoming more and more deeply involved in the transformation of wealth management in mainland China. Under the trend of long-term capital, institutionalization of investors, and market efficiency, ETFs with low investment costs, high degree of standardization, and wide application scenarios have won the favor of more and more investors.

Luo Guoqing: The great development of ETFs benefits from the combined effect of various factors such as demand, supply, and technology.

First, market participants' quest for portfolio diversification has boosted demand for ETFs. As an investment tool that integrates stocks, bonds, commodities and other assets, ETFs have the characteristics of strong liquidity, convenient trading and low cost, and have attracted more and more attention and recognition. At present, not only institutional customers such as insurance, FOF, brokers, private equity, and QFII choose ETFs as allocation tools, but also many mature individual investors also use them as a tool for long-term allocation or swing operations. The active participation of these market players has created conditions for the rapid development of ETFs.

Second, policy encouragement has provided strong support for the vigorous development of the ETF market. The recently released new "National Nine Articles" propose to vigorously promote the entry of medium and long-term funds into the market, continue to expand the long-term investment force, clearly vigorously develop equity public funds, greatly increase the proportion of equity funds, establish a fast approval channel for ETFs, and promote the development of indexed investment. The encouragement and support of the regulatory authorities have enabled the efficient launch and standardized development of ETF products, which has enhanced investors' confidence in ETFs.

In addition, technological advancements and financial innovations have provided impetus for the development of the ETF market. The development of Internet technology has made it easier for investors to obtain and trade ETF products, and the application of financial technology has provided more possibilities for the innovation and development of ETF products, which have jointly promoted the vigorous development of ETFs in China.

At present, ETFs have become an indispensable part of the domestic capital market and play an important role in improving market efficiency and promoting capital flow. In the future, the ETF market will continue to expand, bringing investors efficient and convenient allocation tools.

Active and passive have their own merits and cycles

Xu Zhiyan: The development of ETFs can be summed up in eight words: simplifying, integrating knowledge and action. Simplify the complex, everyone has made it very clear. The unity of knowledge and action means that the ETF has reached the stage of high-quality development, and its scale is a result, which is finally recognized by investors, and is an ecological construction that belongs to the entire industry, and more attention should be paid to customer service. ETFs are growing very fast and may grow 10 times in 10 years in the future. Although the "involution" is serious, there is a lot of room for development.

Nowadays, many investors buy passive funds, index funds, and feeder funds, but a large number of investors still hold active funds. How do you view the development and changes between active and passive funds, and what are the prospects for the future development of the two types of products?

Liu Jiayin: This topic is not new to the past few years. From the beginning of passive investment or ETF inception, practitioners have faced this question, and this question is very difficult to answer. It involves a lot of things, including the complexity and diversity of financial markets, there is no absolute answer, I think it is more like two different strategies in the financial market.

Whether an investor chooses an index fund, an investment method that can obtain the average return of the industry, save time, worry and effort, or choose an active fund that can tap the treasures of the industry, depends on the specific needs of investors. There are now about 900 ETFs on the market, covering a variety of investment strategies, and the future ETF market is sure to be dazzling and diverse. I believe that whether it is the wealth side, fund companies or all participants, they will display 18 kinds of martial arts, show their magic powers, do a good job in service, and provide investors with more weapons for asset allocation.

Gong Tao: The rapid development of index investment has three important characteristics: one is diversification, the second is stratification, and the third is professionalism.

Specifically, first of all, we have been very well aware of diversity in the past year or so, in terms of multi-asset and diversified investment, passive products have brought us a wider investment perspective, and in terms of wealth preservation and appreciation, passive products provide investors with more and more convenient tools.

If you want to expand the scope of investment, it is difficult for active investment alone to extend its tentacles to various countries and types of assets around the world, while passive investment can bring many new development opportunities.

In the domestic market, the diversity of index investments also plays an important role. In the equity market, some strategic indices independent of traditional industry theme indices have achieved good development, such as strategic instrumental products such as dividend low volatility, which have been widely recognized by the market. As index fund managers, we need to actively look for diversity in passive investing in equity markets.

In terms of stratification, we have found a very important change in the communication with many institutional investors, and they have a clearer and more hierarchical approach to the investment framework. Top-down or bottom-up investment hopes to split the style and risk exposure more clearly, and through the use of some quantitative means, the portfolio is reduced to a certain extent, forming a passive index portfolio.

In terms of professionalism, passive products have great advantages over active equity products in terms of rates, convenience of transactions, post-investment management costs, and cost-effectiveness of investment.

Chen Long: I think the trend of active and passive funds will be reincarnated. Looking back at the development history of public funds, we can see that in 2014 and 2015, passive funds developed very well, and at that time they were mainly graded funds, while 2019, 2020, and 2021 were big years for the development of active funds, and later turned to passive funds, this time in the form of ETFs.

In addition to passive funds, many active funds have also begun to adopt dividend-like strategies this year. However, it may be difficult to achieve excess returns in the future. Investment must be reincarnated, and it is impossible to go to one extreme without limit. Now, the scales may still be skewed towards passive products, but the space is not infinite. However, at present, this space is still large enough.

Help investors share the development dividends

Xu Zhiyan: In fact, there should be a kind of integration relationship between active and passive, and the two types of products need to make progress and develop together. Both active and passive are forms of customer service and investment. As a wealth management institution and as a client, how does CICC Wealth Management view this issue?

Li Wanqing: When it comes to active and passive, I have a strong consensus with you. First of all, active management, it is an old friend of brokers. With the continuous development of actively managed funds, the product scale of brokerages continues to expand, and brokerages are also beneficiaries. Considering the current stage of development of the market, the maturity of investors, the business structure of brokerages and the size of product stock, actively managed products will continue to be one of our key focus areas in the coming period.

From the perspective of customers, there are several investment directions worth focusing on in the process of China's economic restructuring, including green economy and digital economy. In an environment of increasing market efficiency, ETFs are a great way for the average investor to participate in these directions.

In the field of brokerage wealth management, we often say that "no scale, no wealth management". In recent years, public funds have developed greatly. Previously, CICC Wealth Management was known for its private placements. Now, our business direction is very clear, that is, to pay more attention to the public offering field, and ETFs are the fast lane in public offerings. In order to fight for this booming fast lane, we have to do ETFs, which is a strategic choice.

In addition, we do ETFs because we have a large number of clients who only participate in OTC products, and many of them do not even have exchange trading accounts. ETFs can provide a two-way track, which can not only allow equity investors to pay attention to ETFs as an allocation tool, but also allow OTC customers to enter the exchange market through ETFs. We have been insisting on advancing internally, and there is still a lot of room for development in the future.

When we do asset allocation, we have always practiced the concept of buy-side investment consulting on the client side. Fundamentally speaking, brokerage wealth management is to help customers find the best students in China's capital market, whether active or passive, as long as it can help investors share the dividends of the development of the capital market, it is the choice that our wealth management service institutions should make. Therefore, it is necessary to listen more to customers and provide them with appropriate configuration strategies.

"Roll" out better services for investors

Xu Zhiyan: It is a very natural process for brokerage clients to switch to ETFs. In the future, what are your suggestions and ideas on the ecological construction of the ETF market and the innovation and development of products, and what aspects need to be jointly worked by the industry?

Chen Long: The new regulations are very important to promote the growth of ETF scale. In the new ecosystem, brokers, market makers, and private equity are very important forces. Especially for new ETF products, the scale from small to large requires a lot of liquidity support. The introduction of new regulations will help to run in or reconstruct the industry ecology, and some of the original methods or practices may no longer be applicable, and the industry is indeed facing certain challenges.

From the perspective of products, in the context of global layout, investors have a greater demand for overseas products. However, in the actual expansion, overseas products will be subject to some constraints, such as the quota of existing products, and the direction of incremental growth is relatively limited. In the first quarter of this year, the scale of ETFs grew very considerably, but the market demand was still not fully met. In terms of commodity ETFs, there are no other varieties except gold. The oil, copper, and non-ferrous metals that everyone is more concerned about have not been driven by much increment this year.

It can be said that the current asset allocation map is not perfect enough. Due to quota restrictions, investors may face a higher premium when purchasing ETFs, which may affect their expectations of future returns.

Gong Tao: At the liquidity level, in the past, the ecology was maintained by index fund managers under the coordination of exchanges. However, the current trend is to gradually concentrate on some centralized overall planning and coordination levels, and some new ecosystems and models may emerge in the future.

Now that the "involution" of the industry is becoming more and more prominent, fund managers must be more refined and forward-looking on the product side in order to stand out, and work towards a more long-term strategic direction. In terms of investment management, on the one hand, it is necessary to ensure the accuracy of tracking, which is the core criterion for evaluating the strength of index fund managers. For indices with long-term allocation value (such as broad-based indices), capturing deterministic excess returns is also an important mining direction. On the product operation side, doing more customer guidance in terms of research services and providing comprehensive solutions is also the direction that the industry needs to iterate and progress in the future. From a fund manager's perspective, we want to do better in all of these areas and offer more differentiated products to investors.

Liu Jiayin: In the past, the competition may be more in the product layout, and homogenization is only a result. Nowadays, the tracking accuracy of index products is getting higher and higher, but the competition in investment management has not reached a particularly serious level. In the future, the competition in service and operation will become more and more fierce. The management of ETF products has changed, and it has gradually shifted from emphasizing layout to emphasizing operation and service, because service and operation are the embodiment of comprehensive capabilities. It has a very wide range, which can be the output of ETF investment and education knowledge, as well as the construction of the service system, the arrangement of the market maker system, and the control of tracking error, and even the reduction of transaction costs and the improvement of comprehensive income.

Luo Guoqing: The essence of the asset management industry is to serve investors and make money for them. Both products and services are important. The service will allow us to have more interaction with investors. In fact, competition is a good thing for investors. The competition in ETFs in the industry can make the investment ecology develop in a better direction. As the market competition becomes more and more fierce, the survival of the fittest will intensify, and those who can survive the long-term competition in the market must be good companies that stand with investors.

From the product side, the strategy index may be the future direction of the industry. In the overseas ETF market, the three major strategies of dividend, growth and value each account for one-third of the market share. In the domestic market, the dividend strategy is currently developing well, and the growth and value strategy still needs to cultivate customers. Fund companies have increased investment in these areas, focused on quantitative research, developed better indices, etc., and are closer to customer needs in terms of strategy supply, and strive to provide new strategies with more vitality.

All in all, there is a lot of room for long-term development of the industry, and we will continue to strengthen our product layout, strategy development, research and management capabilities, and strive to provide investors with better allocation tools for wealth management.

Xu Zhiyan: Strategy is very important. At present, in addition to making standardized products, overseas product expansion, the enrichment of strategic indices and the strategy of customers are also very good angles, so that customers will use our products to better realize its value.

Lin Weibin: A mature ETF market is inseparable from the synergy and cooperation of different entities such as funds, brokers, investment advisors, exchanges, index companies, investors and media. In the future, in order to promote the co-construction and development of the domestic ETF ecosystem, as a fund manager, we can start from the following aspects:

1. Strengthen the construction of the solution system and improve the index allocation experience. At present, ETF products are becoming more and more abundant, and investment strategies are becoming more and more diverse, and investors are facing difficulties in product and strategy selection. Fund managers need to continue to strengthen ETF investment and research capabilities, build a sound and customer-centric asset allocation and solution system, and help investors better achieve asset allocation through ETFs through in-depth research and professional services.

2. Strengthen cooperation with investment advisors and empower the transformation of wealth management with ETFs. Brokerage investment advisors have rich experience in serving stock customers on the market, and are expected to expand to provide investors with allocation services for ETFs and other weighted assets in the future. Fund managers can promote the transformation of wealth management by empowering the investment advisory business, forming business linkages, and achieving a win-win situation for all parties in the ecosystem.

3. Strengthen investor education and companionship services, and establish a long-term investment philosophy. Convey the concept and knowledge of index investment through multiple channels and forms, actively explore and promote service models such as index regular investment, improve the investor experience, make investors see through, understand and operate, and establish an index investment concept of long-term investment and rational investment.

Fourth, promote the formation of a more complete and healthy ecosystem in the ETF market, tell China's story to foreign investors and other customers, and continue to explore in the innovative design of ETF products, the construction of derivatives system, and the allocation of medium and long-term funds, so as to promote the prosperity and development of the ETF ecosystem.

Xu Zhiyan: Combined with what several guests have said, let me briefly sort it out. First, in order to achieve greater development, we must first solve the pain points. For example, the comprehensive cost of product establishment is relatively high now, can we make some improvements in this area in the future to lower the threshold for ETF product establishment?

Second, liquidity is the core external feature of ETFs, whether it is possible to expand the scope of liquidity service providers, introduce diversified market makers, and enrich the ETF liquidity ecology.

The above is our suggestion as a product provider, what is CICC Wealth's demand for this?

Li Wanqing: CICC Wealth's role is to allocate and apply ETFs. At present, there have been some red-sea-based broad-track ETFs in the market, and the product homogeneity is obvious. In fact, ETFs are still a blue ocean in terms of asset allocation, and CICC Wealth Management pays special attention to multi-asset varieties and advocates diversified allocation. In addition, we want to increase our portfolio of ETFs in bonds and low-risk assets.

In the future, ETFs are not only a representative of passive investment, but also have great potential in active investment, and are expected to become an important wealth management support asset.