• News
• 2024-09-17

Differentiation Strategy: Excelling in Products and Services for the ETF Era

Passive investing is gaining more and more popularity, and ETFs have achieved leapfrog development, with the total scale exceeding the 3 trillion yuan mark. Currently, ETFs have become the most competitive track in the asset management industry, with intense competition in every aspect such as product development, issuance, and operations.

Fund companies have indicated that compared to overseas markets, the domestic ETF market is still vast and full of potential. All market participants should work together to provide high-quality ETF products and services, and welcome the new era of index investing.

In the fierce competition, the path of differentiated development is being pursued.

The total scale of ETFs in Shanghai and Shenzhen stock markets has crossed the 3 trillion yuan threshold, and the range of products continues to expand. At the same time, the homogenization of ETF competition is also intensifying.

In response, Xu Zheyin, Assistant General Manager of Huaan Fund and Senior Director of the Index and Quantitative Investment Department, stated that the homogenization of ETFs is a normal phenomenon in the development process of the industry, especially when core resources are relatively scarce. Assets tracking the main broad-based indices occupy a large proportion, leading many fund companies to launch similar products to meet market demands. In fact, fund management companies have been continuously exploring in product innovation, strategy indices, and differentiated layout.

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"The homogenization of ETFs may create a resonance effect in product promotion, which is beneficial for investors to quickly understand ETF products. However, homogenized competition not only increases the difficulty for investors to select suitable ETFs but also makes it difficult to drive comprehensive scale growth," said Hu Jie, General Manager of the Index Development Investment Department of Huabao Fund.

Yin Hao, Fund Manager of Bosera Growth Enterprise Market ETF, stated that passive products have a more obvious first-mover advantage and a head advantage. Only a few leading companies may be able to grow large and enter a virtuous cycle of scale and liquidity, while other products find it difficult to grow in scale. For fund companies, they can carry out differentiated product layout based on their own advantages and also do a good job in investor services to increase product stickiness.

"Fund companies need to choose a suitable path for ETF development based on their own resource endowments. Some companies can be large and comprehensive 'supermarkets,' while others may be more suitable as 'boutiques' focusing on a certain type of product," a viewpoint from an industry insider is quite representative.

In fact, many fund companies have made many valuable attempts in the differentiated development of ETFs.

Xu Zheyin introduced that Huaan Fund has actively innovated in gold ETFs, cross-border products, national development bond ETFs, and Hang Seng Technology and other Hong Kong stock ETFs. It has also cooperated with relevant institutions in the development of the Growth Enterprise Market 50 Index in terms of index compilation.Southern Fund adheres to refined management of ETFs, reducing transaction costs and strictly controlling tracking deviation through intelligent index investment platforms and quantitative investment methods, thereby steadily enhancing returns and maintaining good tracking accuracy of ETFs.

Further increase in innovation efforts

The high-quality development of China's capital market continues to advance, with investors' demand for diversified asset allocation growing stronger and long-term funds accelerating into the market. There is still significant room for development in China's ETF market.

"Compared with overseas markets, the domestic ETF market has great potential for development," said Huaxia Fund. From the data, as of the end of 2023, the scale of equity ETFs in the United States accounts for 12.7% of the total market value of stocks, while the scale of China's equity ETFs only accounts for about 4% of the market. Based on the current size of China's market, ETFs have tremendous development space.

Scaling up cannot be separated from innovation. Huaxia Fund stated that ETF innovation can be carried out in two directions: innovation in investment targets and innovation in supporting mechanisms. Innovation in investment targets includes serving the development of new quality productive forces and enhancing investors' sense of gain; innovation in supporting mechanisms requires the joint efforts of the entire industry to optimize and improve the ETF investment environment.

"The domestic ETF market not only has huge growth space in scale but also is full of opportunities in product innovation and mechanism optimization," said Xu Zhiyan.

Chen Long, Deputy General Manager of Penghua Fund's Quantitative and Derivatives Investment Department, believes that compared with overseas mature markets, domestic ETFs still have a large space for innovation in investment categories and structures.

"Commodity ETFs, cross-border ETFs, REITs-ETFs, and bond sub-index ETFs are all directions that can be expanded. In terms of structural innovation, referring to overseas markets, under the premise of meeting investors' appropriateness requirements, pilot leveraged ETFs based on broad-based indices can be considered, such as multiple long or short ETFs, to meet the diversified investment needs of professional investors," said Chen Long.

Huatai Baorui Fund's Index Investment Department stated that in terms of product supply, although the layout of A-share ETF products is relatively sufficient, there is still room for expansion. First, in the process of technological progress and industrial transformation, new industries or themes will continue to emerge; second, the current cross-border ETFs mainly cover developed markets, and the coverage of emerging markets with development and investment potential is relatively low, and these areas are expected to become key layout directions; third, the structure of ETF products may be adjusted, and the existing base of low Smart-beta ETFs is expected to accelerate development in the future; fourth, in terms of investment strategies, US stock ETFs are relatively rich, with leverage, hedging, etc., all of which can be considered for the future.

Southern Fund's Index Investment Department stated that ETF products in overseas markets are more mature and diversified, with a significantly richer variety of strategic and thematic ETFs than in China. Domestic ETF innovation can focus on cross-market and cross-asset ETFs, Smart Beta ETFs, as well as key and emerging areas such as green economy and new quality productive forces, providing support tools for long-term funds to enter the market.