previously upgraded my industry momentum rotation strategy (for details, see: New upgrade of industry rotation, annualized 38% in the past 2 years). In addition to the strategy itself, the most common questions readers ask are: which index is optimistic about, and which ETF to buy. Best ?
In fact, the choice of index and corresponding ETF is a big issue and is by no means simple. So letβs talk about it here.
The pursuit of liquidity and the pursuit of excess returns
In a traditional ETF market like the United States, ETFs are more beautiful. Larger ETFs have lower fees, better tracking performance, better trading activity, and better options markets. In short, it can be said to be a "winner takes all" situation.
However, in the A-share ETF market, due to the existence of bug-level excess returns of "creating new thickenings", ETF sometimes even "take small as beauty". Traditionally, funds with a scale of 200-500 million yuan are considered to be the most economical scale to create new investments.
This leads to two completely opposite preferences in the choice of A-share ETFs:
β pursues liquidity and emphasizes a sufficiently high average daily trading volume;
β‘ pursues excess returns and emphasizes moderate scale - and this often means The average daily turnover cannot be too high.
The table below is a classified statistics made by the author using the income of all A-share ETFs (excluding index-enhanced ETFs) in the first half of 2022 combined with the scale at the end of 2021. It should be noted that "excess of its peers" refers to the excess return of a certain ETF compared to the average return of all ETFs tracking the same index. The larger the number, the more ideal the excess return of this ETF is compared to its peers.
To be honest, this table somewhat surprises me. Traditionally, the optimal scale for new investment is 200 million yuan, so I also believe that in terms of excess returns from new investment, an ETF of 200-500 million yuan should be optimal. But statistics show that for ETFs with .5-1 billion, excess returns are the best .
It is difficult to explain the reason why this scale is optimal, but please keep this scale in mind. If you pursue excess returns from long-term holding of , you must choose 500-1 billion yuan as your first choice, and with 200-500 million yuan as your second choice. .
But we can also see from the above table that the average daily trading volume of small-scale ETFs is bound to be very sluggish, usually between 20 and 30 million yuan, compared with the average daily trading volume of large-scale ETFs above 5 billion yuan, which is 650 million yuan. Both were sold, with huge differences.
So, when you are pursuing excess returns, you cannot have too many requirements on the liquidity of this ETF. Although in the presence of market makers, the liquidity of ETFs with small average daily trading volume may not be extremely poor, but whether it is in terms of the price difference between buy one and sell one or the total number of pending orders from one sell to five sells, compared with Large-scale ETFs are definitely much different. It may not be a big problem for small retail investors, but sometimes it can be a bit difficult if you want to buy hundreds of thousands or even millions at a time.
Of course, an "off-the-shelf trick" that jumps out of ETFs is to use these ETFs' to link funds . You are not afraid of large amounts in and out - but at the expense of ETFs, you can fast in and out quickly on T+1 without high redemption fees. advantages, only suitable for long-term holders.
19 Industry's preferred ETF
The article also said at the beginning that many readers hope to implement the industry momentum similar to the author's strategy of pursuing a one-time large-scale change of positions in and at the end of the day, so obviously they must focus on pursuing liquidity. .
's pursuit of liquidity does not mean that we must choose the one with the best liquidity. After all, in the process of ETF trading, the discount and premium of ETFs that track the same index may change every minute. On the premise that 's liquidity satisfies your transaction, the ETF with a par price or even a higher discount rate of or is better. The choice is .
Therefore, among the 19 industry indexes tracked by the author, up to 3 ETF alternatives will be given based on the average daily turnover in the first half of the year. You can choose based on discounts and premiums when you need to trade.
However, not all industry indexes have alternatives.
The table below shows the current number of ETFs in these 19 industry indexes, the average daily total trading volume in the first half of the year, the total size on June 30, and average management fees.It can be seen that in addition to the more popular indexes such as securities companies, China Securities Bank, and photovoltaic industry, there are multiple ETFs to choose from, and indexes such as non-ferrous metals, steel, coal, and wine are all unique. Fortunately, or perhaps because of their uniqueness, trading is active, and the average daily trading volume of these ETFs exceeds 100 million.
The table below is the candidate ETFs for these 19 industry indexes, please collect them.
After statistics, there are more than 3 ETFs selected, and a total of 8 fund companies. Cathay Pacific is the big winner, with 12 companies selected in 19 indexes. Although there are unique ones such as steel, coal, CS biomedicine , there are also veteran leading products such as securities companies and military industry.
Appendix: ETF full sample data
Of course, the author here only announces the corresponding alternative ETFs for the strategies I use.
But I know that the more ETF players there are, the more indexes we need to choose the corresponding ETF. Therefore, I would like to share with you the appendix, which contains the average daily trading volume, size and other data of all ETFs. You can filter them by yourself.
is the same as before, still Tencent document : https://docs.qq.com/sheet/DRFdmVlhpc2l0ekFW
