In a significant development for the investment landscape, a new wave of expansion for broad-based Exchange-Traded Funds (ETFs) is slated for 2025. On February 17, the first batch of 13 Science and Technology Innovation Board Comprehensive Index ETFs was launched, paving the way for a diverse array of investment opportunitiesThis initiative is not merely a routine market update; it stands as a transformative moment in the deepening reforms of capital market investment, marking a concerted effort to bolster the technological innovation sector and enhance productivity in China's evolving economic landscape.

The Science and Technology Innovation Board, or Sci-Tech Board, has become a formidable platform for tech-driven enterprises, often referred to as "hard technology" firms, which are increasingly essential for fostering new productivity paradigmsWith substantial developmental potential, the board draws considerable attention from institutional investors eager to tap into its dynamic growthThe Sci-Tech comprehensive index is expected to capture significant value in the future as it further develops, with a clear trajectory of escalating total market capitalization.

As the Sci-Tech Board celebrates over five years since its inception, it has reached another critical milestoneOn January 8, 2025, the Shanghai Stock Exchange and the China Securities Index Company announced the launch of the Shanghai Stock Exchange Sci-Tech Comprehensive IndexBy January 20, the index was officially introduced, and soon after, the first batch of 12 ETFs tracking the Sci-Tech Index received approvalIndustry experts identified a pressing need for an index with greater coverage and comprehensive sample capacity, hence the emergence of the Sci-Tech Comprehensive Index as a timely solution.

The prospectuses for these ETFs indicate that most of them have set a fundraising ceiling of approximately 2 billion yuan

Advertisements

Notably, several notable funds such as the Huaxia and E Fund Sci-Tech Comprehensive ETFs will be available for just five days from February 17 to 21 for investmentOthers like the ICBC and E Fund offerings will extend to February 28. Reports also reveal that the Jianxin Sci-Tech Comprehensive Index ETF has already reached its funding target.

To facilitate the investment in these "hard technology" opportunities, many of the ETFs have adopted a competitive fee structure, with most management fees set at an attractive 0.15% annuallyFor instance, the Guotai Fund's ETF is set to enter its issuance phase on February 24, following the same fee model.

During a recent conversation on the high-quality development of index-based investments held on February 14, representatives from the Shanghai Stock Exchange emphasized their commitment to enriching the index fund product ecosystemTheir goal is to continue optimizing the ETF framework and working collaboratively with market stakeholders to enhance the coherence and impact of the initiatives designed to foster high-quality investment in indices, thereby improving the attraction and stability of long-term capital influx into the A-share market.

The Sci-Tech Comprehensive Index serves as a pivotal component in this new landscape, meticulously designed to include all publicly traded companies on the Sci-Tech Board that meet specific eligibility criteriaIt factors in all dividends into its performance metrics, painting a holistic picture of how these stocks perform after accounting for distributionsThe index exhibits three defining characteristics: it emphasizes cutting-edge innovation ("Investing Frontiers"), maintains wide industry coverage ("Investing Broadly"), and focuses on early-stage innovation companies ("Investing Early").

Specifically, an analysis by E Fund indicates that "Investing Frontiers" relates to the index's focus on frontier technological innovation, with data showing that all constituent stocks belong to strategically emerging industries, particularly with information technology comprising nearly 58% of the index as of February 7. Meanwhile, the index is notable for its substantial research and development investments, boasting an average R&D expenditure rate exceeding 10% for 2023. "Investing Broadly" refers to the index’s extensive sector coverage, capturing all 17 primary industry classifications as outlined by the China Securities Classification system and 44 of the 46 secondary categories, indicating robust diversification.

Whereas, "Investing Early" highlights the comprehensive lifecycle approach in the index's design, with a significant tilt towards small-cap stocks still navigating early stages of innovation

Advertisements

Nearly 97% of the index's coverage addresses the lower end of the market capitalization spectrum, allowing investors to position themselves advantageously amid the rising tide of tech startupsMore than half of the constituent stocks fall under the 5 billion yuan market cap range; conversely, those exceeding 30 billion yuan comprise less than 10%, further solidifying the index as a fertile ground for early-stage investment opportunities.

Experts from various funds emphasize the attractiveness of the Sci-Tech Comprehensive Index, citing its high market coverage, strong ties to innovative sectors, and substantial incorporation of artificial intelligence-related firms, gathering momentum and a favorable outlook for long-term investment strategiesThe introduction of Sci-Tech Comprehensive Index ETFs is anticipated to channel new funds into the Sci-Tech Board, thereby enhancing the capital market's capability to support and drive China's core technological innovation.

The expansion of index funds doesn't stop at the Sci-Tech Comprehensive Index ETFs; other related products are either in the works or set to be launched soon, such as the Morgan Sci-Tech Information Technology ETFThe continuous evolution of index investment tools reflects a robust effort among public funds to enhance their offerings tailored to the Sci-Tech BoardNotably, recent studies by GF Securities predict that the allocation of active equity funds towards Sci-Tech Board stocks is expected to rise from 10.54% at the end of the third quarter of 2024 to about 13.02% by year-end, marking a historical peak.

Specific examples include E Fund’s earlier product launches tracking indices like the Sci-Tech 50 and the Sci-Tech 100, diversifying their portfolio strategies according to different scales and industry themesSimilarly, rows of offerings from Bosera Fund and Southern Fund include multiple ETFs catering to various innovative themes

Advertisements

Advertisements

Advertisements