Introduction: Friends who know Dianshi Investment must know that for a long time, Dianshi Investment’s content has mainly focused on interviews with fund managers in active equity. We have long believed that active equity fund can create better excess returns in A shares . We have seen it in history, and this will be the case in the future for a longer time.
Looking back, whether it is compared with the high of 5,000 points in 2015, or the high of 6,000 points in 2007, or the index seems to have been sideways around 3,300 points since 2008, and even every few years there are sounds of "defending 3,000 points". During this period, most of the active equity funds in A-shares were constantly hitting new highs, and the excess returns of the relative index were astonishing.
is like when fund managers are investigating listed companies, they constantly emphasize the importance of management teams. We believe that when buying fund products, the fund manager's understanding, personality, values of investment, and the investment research platform support behind him are extremely important. Part of buying funds is buying people, because people are the source of creation of alpha. And we see that just like China's manufacturing and high-tech industries, asset management companies have a group of extremely dedicated, excellent, diligent and focused people who are creating value for the progress of the majority of holders and society.
No matter what, Dianshi Investment will still focus on the track of active equity!
However, recently we have also begun to have some new ideas about investment in index funds and see some new changes.
Two major reasons why the Shanghai Composite Index does not rise
Regarding the story of index funds, we must start with the "distorted Shanghai Composite Index". . .
What we usually say is that the index has returned to zero for decades, the 3,000-point defense war, and the stock market do not reflect economic growth, which is behind it all pointing to the Shanghai Composite Index. Regarding the Shanghai Composite Index, I think there are three problems:
First of all, the "curse" of component . Many companies start to take the lead once they are included in the component stocks. The most typical example is PetroChina. Many people don’t know that PetroChina is the first company in the world to have a market value of more than $1 trillion, 10 years earlier than Apple . However, this day was the day when PetroChina went public in 2007, and then it entered a slow and bearish road. Judging from the index design, the Shanghai Composite Index always lacks some "sense of the times", and our benchmark US S&P 500 index will undergo a major change every 10 years.
Secondly, excessive financing in China's capital market is also the reason for the poor performance of the index. We saw a number a few years ago that all listed companies in A-shares after excluding finance were 25.5 trillion yuan, while the operating inflow of their physical enterprises was 22.3 trillion yuan. The difference between the two reached 3.2 trillion yuan, which means that the scale of financing for Chinese companies exceeded the money given to shareholders.
We know that the long-term performance of the stock price is related to earnings per share (EPS). Compared with other countries, China's overall profit growth (E) is still very fast, but because the number of stocks (S) grows very fast, EPS is finally diluted. We read a batch of reports on Bridgewater a few years ago and counted the data from 2011 to 2017. At this stage, the growth rate of profits of Chinese enterprises in is faster than that of other countries, with overall profit growth of 116%, higher than the 32% profit growth of developed countries and significantly higher than the 12% profit growth of other emerging market countries . However, during this period, the additional issuance of A-shares dragged down 89% on earnings per share. is such a strong earnings growth that can only be converted into 26% earnings per share growth. Also due to excessive stock issuance, A-shares' valuation has declined by 12% since 2011. During the same period, the valuation of stock markets in developed countries increased by 27%, while the valuation of stock markets in other developing countries increased by 41%.
However, product innovation is optimizing the structure
In recent years, the significant changes in index funds are from continuous product innovation. We have seen that fund companies have compiled various more segmented indexes, some have optimized broad bases (such as MSCI China Index ), and some have launched index funds in various segmented industries and tracks.
We once conducted a study on the MSCI China index in 2018, which included high-quality Chinese companies listed around the world. The index has fallen for only three years since 2004, and has hit an all-time high by the end of 2017, surpassing its 2007 high. We once said that A-shares are actually very profitable. From 2005 to 2017, the only bear markets that were really difficult to make money were 2008, 2011 and the second half of 2015. Coincidentally, the three-year declines in this index dimension were also in 2008 (down 50%), in 2011 (down 18%) and in 2015 (down 7%). It can be said that the MSCI China index more objectively reflects economic fundamentals. Among its constituent stocks, BAT accounts for more than 35%.
Let’s look at it from the perspective of segmented tracks and products. In recent years, many active equity funds have become more and more industrialized and stylized. The core reason behind this is that fund managers have begun to focus more on investing in their own circle of capabilities. More than a decade ago, the market was basically all-weather fund managers, and over the years, the market was more of an expert fund manager.
In a previous interview, a diversified asset allocation fund manager who has been working in the overseas market for many years told me that today there are fewer and fewer all-weather fund managers in overseas markets, while there are more and more expert fund managers. In the end, there may be no fund managers all the time, and only expert fund managers are left. Only such a fund manager's excess returns can be maintained stably.
From this perspective, index funds for various sub-industry and tracks are also better choices. Compared with active equity funds, these products will not have the problem of style drift, and what you see is what you gain. Product information is subject to clear investment scope constraints. For example, photovoltaic ETFs will not buy electric cars; electric vehicle ETFs will not buy photovoltaics.
Moreover, the classification of products is becoming more and more extensive and more detailed. For example, in the consumer goods field, there are already subdivided liquor ETFs; photovoltaics and electric vehicles in the new energy field also have their own ETF products. Almost everyone can think of sub-tracks, there are some index funds.
More and more product innovations have largely solved the problem of wide-based exponential distortion. It also gives index fund products a greater audience!
The trading needs of some investors
In the past few years, I have also begun to understand the diversified needs of investors. From my own perspective, I believe that investment should be held for a long time. I even said in some live broadcasts that as long as the trusted fund manager does not leave, I will never sell the fund I hold. Because, I invest in and , I also understand that only by taking long investment can there be good returns. More importantly, I firmly believe in China's "national destiny" and believe that economic and social development will continue to improve.
However, over the years, I have found that my investment ideas cannot represent everyone. As Professor Luo Wenquan said in the book "Adaptive Market", the capital market consists of many "organisms", rather than a single organism. This is like the environment in which we live. It is precisely because of the state of multiple organisms that we can achieve better organizational evolution.
transactional demand is indeed the demand of many people. Index funds will provide lower fees and better convenience for the market's trading needs. For example, since the low point rebounded on April 27 this year, the best performer is new energy vehicle . Then some people can get better returns by trading index funds for new energy vehicles. A little earlier, when the overseas Chinese stock plummeted, many friends around me came to ask me if there were any relevant index funds that could buy at the bottom of .
For investors with trading needs, they usually have certain judgments about the market. For example, if you want to buy at the bottom of the market, new energy vehicle , and Hong Kong stock plummeted, it is suitable for you to buy at the bottom of the Internet funds. These investors essentially want to trade some kind of beta, so pure beta index funds are the best choice.
The United States has been a feast for index funds in the past 10 years
From the perspective of the United States, this bull market that began in 2009 is a feast for index funds. Funds are constantly redeemed from absolute return hedge fund and bought pure beta index funds. We also remember the famous 10-year bet for Buffett . In the end, Buffett is optimistic about the S&P 500 index, which completely beats FOHF. In terms of trading volume and trading activity, index funds account for more and more high proportions in US stocks. Even today, BlackRock and Vanguard, the two largest asset management companies in the United States, are not century-old stores. By promoting index funds, the scale has far exceeded that of a group of fund companies that have existed for decades.
The great development of US index funds is inseparable from the long-term bullishness of the index. We see that from 1980 to the present, the S&P 500 index fell by more than 10% in the years 2001, 2002 and 2008 (the current decline in 2022 is 21%). The S&P 500 has only fallen 9 times, and the rest of the 30 years have risen.
So we see that investing in a high-quality index has become one of the best assets in the United States in the past 20 years within a long enough time frame. Judging from the data from 2002 to 2021, the annualized return of the S&P 500 reached 9.5%, surpassing almost all assets and significantly outperforming the 3.6% annualized return of ordinary investors. And compared with REITs, which has higher yields, investment in emerging market stocks and S&P 500 index funds is more convenient and transparent.
We do not think that China's traditional broad-based index will copy the US S&P 500, but in a constantly innovating capital market, some better underlying broad-based indexes may have appeared, which can bring better long-term returns to Chinese holders and will also promote the great development of index funds.
So we chose to open a new account. . .
After seeing a series of product innovations of index funds, objective user needs, and the great development of overseas index funds, we also decided to open a new official account: ETF Research Room.
In this official account, we will end various innovative index fund products and recommend some index fund products with trading value based on market hotspots. In terms of content, this new official account will be different from our first Dianshi Investment, and will be managed by a separate team.
Introduction: Friends who know Dianshi Investment must know that for a long time, Dianshi Investment’s content has mainly focused on interviews with fund managers in active equity. We have long believed that active equity fund can create better excess returns in A shares . We have seen it in history, and this will be the case in the future for a longer time.
Looking back, whether it is compared with the high of 5,000 points in 2015, or the high of 6,000 points in 2007, or the index seems to have been sideways around 3,300 points since 2008, and even every few years there are sounds of "defending 3,000 points". During this period, most of the active equity funds in A-shares were constantly hitting new highs, and the excess returns of the relative index were astonishing.
is like when fund managers are investigating listed companies, they constantly emphasize the importance of management teams. We believe that when buying fund products, the fund manager's understanding, personality, values of investment, and the investment research platform support behind him are extremely important. Part of buying funds is buying people, because people are the source of creation of alpha. And we see that just like China's manufacturing and high-tech industries, asset management companies have a group of extremely dedicated, excellent, diligent and focused people who are creating value for the progress of the majority of holders and society.
No matter what, Dianshi Investment will still focus on the track of active equity!
However, recently we have also begun to have some new ideas about investment in index funds and see some new changes.
Two major reasons why the Shanghai Composite Index does not rise
Regarding the story of index funds, we must start with the "distorted Shanghai Composite Index". . .
What we usually say is that the index has returned to zero for decades, the 3,000-point defense war, and the stock market do not reflect economic growth, which is behind it all pointing to the Shanghai Composite Index. Regarding the Shanghai Composite Index, I think there are three problems:
First of all, the "curse" of component . Many companies start to take the lead once they are included in the component stocks. The most typical example is PetroChina. Many people don’t know that PetroChina is the first company in the world to have a market value of more than $1 trillion, 10 years earlier than Apple . However, this day was the day when PetroChina went public in 2007, and then it entered a slow and bearish road. Judging from the index design, the Shanghai Composite Index always lacks some "sense of the times", and our benchmark US S&P 500 index will undergo a major change every 10 years.
Secondly, excessive financing in China's capital market is also the reason for the poor performance of the index. We saw a number a few years ago that all listed companies in A-shares after excluding finance were 25.5 trillion yuan, while the operating inflow of their physical enterprises was 22.3 trillion yuan. The difference between the two reached 3.2 trillion yuan, which means that the scale of financing for Chinese companies exceeded the money given to shareholders.
We know that the long-term performance of the stock price is related to earnings per share (EPS). Compared with other countries, China's overall profit growth (E) is still very fast, but because the number of stocks (S) grows very fast, EPS is finally diluted. We read a batch of reports on Bridgewater a few years ago and counted the data from 2011 to 2017. At this stage, the growth rate of profits of Chinese enterprises in is faster than that of other countries, with overall profit growth of 116%, higher than the 32% profit growth of developed countries and significantly higher than the 12% profit growth of other emerging market countries . However, during this period, the additional issuance of A-shares dragged down 89% on earnings per share. is such a strong earnings growth that can only be converted into 26% earnings per share growth. Also due to excessive stock issuance, A-shares' valuation has declined by 12% since 2011. During the same period, the valuation of stock markets in developed countries increased by 27%, while the valuation of stock markets in other developing countries increased by 41%.
However, product innovation is optimizing the structure
In recent years, the significant changes in index funds are from continuous product innovation. We have seen that fund companies have compiled various more segmented indexes, some have optimized broad bases (such as MSCI China Index ), and some have launched index funds in various segmented industries and tracks.
We once conducted a study on the MSCI China index in 2018, which included high-quality Chinese companies listed around the world. The index has fallen for only three years since 2004, and has hit an all-time high by the end of 2017, surpassing its 2007 high. We once said that A-shares are actually very profitable. From 2005 to 2017, the only bear markets that were really difficult to make money were 2008, 2011 and the second half of 2015. Coincidentally, the three-year declines in this index dimension were also in 2008 (down 50%), in 2011 (down 18%) and in 2015 (down 7%). It can be said that the MSCI China index more objectively reflects economic fundamentals. Among its constituent stocks, BAT accounts for more than 35%.
Let’s look at it from the perspective of segmented tracks and products. In recent years, many active equity funds have become more and more industrialized and stylized. The core reason behind this is that fund managers have begun to focus more on investing in their own circle of capabilities. More than a decade ago, the market was basically all-weather fund managers, and over the years, the market was more of an expert fund manager.
In a previous interview, a diversified asset allocation fund manager who has been working in the overseas market for many years told me that today there are fewer and fewer all-weather fund managers in overseas markets, while there are more and more expert fund managers. In the end, there may be no fund managers all the time, and only expert fund managers are left. Only such a fund manager's excess returns can be maintained stably.
From this perspective, index funds for various sub-industry and tracks are also better choices. Compared with active equity funds, these products will not have the problem of style drift, and what you see is what you gain. Product information is subject to clear investment scope constraints. For example, photovoltaic ETFs will not buy electric cars; electric vehicle ETFs will not buy photovoltaics.
Moreover, the classification of products is becoming more and more extensive and more detailed. For example, in the consumer goods field, there are already subdivided liquor ETFs; photovoltaics and electric vehicles in the new energy field also have their own ETF products. Almost everyone can think of sub-tracks, there are some index funds.
More and more product innovations have largely solved the problem of wide-based exponential distortion. It also gives index fund products a greater audience!
The trading needs of some investors
In the past few years, I have also begun to understand the diversified needs of investors. From my own perspective, I believe that investment should be held for a long time. I even said in some live broadcasts that as long as the trusted fund manager does not leave, I will never sell the fund I hold. Because, I invest in and , I also understand that only by taking long investment can there be good returns. More importantly, I firmly believe in China's "national destiny" and believe that economic and social development will continue to improve.
However, over the years, I have found that my investment ideas cannot represent everyone. As Professor Luo Wenquan said in the book "Adaptive Market", the capital market consists of many "organisms", rather than a single organism. This is like the environment in which we live. It is precisely because of the state of multiple organisms that we can achieve better organizational evolution.
transactional demand is indeed the demand of many people. Index funds will provide lower fees and better convenience for the market's trading needs. For example, since the low point rebounded on April 27 this year, the best performer is new energy vehicle . Then some people can get better returns by trading index funds for new energy vehicles. A little earlier, when the overseas Chinese stock plummeted, many friends around me came to ask me if there were any relevant index funds that could buy at the bottom of .
For investors with trading needs, they usually have certain judgments about the market. For example, if you want to buy at the bottom of the market, new energy vehicle , and Hong Kong stock plummeted, it is suitable for you to buy at the bottom of the Internet funds. These investors essentially want to trade some kind of beta, so pure beta index funds are the best choice.
The United States has been a feast for index funds in the past 10 years
From the perspective of the United States, this bull market that began in 2009 is a feast for index funds. Funds are constantly redeemed from absolute return hedge fund and bought pure beta index funds. We also remember the famous 10-year bet for Buffett . In the end, Buffett is optimistic about the S&P 500 index, which completely beats FOHF. In terms of trading volume and trading activity, index funds account for more and more high proportions in US stocks. Even today, BlackRock and Vanguard, the two largest asset management companies in the United States, are not century-old stores. By promoting index funds, the scale has far exceeded that of a group of fund companies that have existed for decades.
The great development of US index funds is inseparable from the long-term bullishness of the index. We see that from 1980 to the present, the S&P 500 index fell by more than 10% in the years 2001, 2002 and 2008 (the current decline in 2022 is 21%). The S&P 500 has only fallen 9 times, and the rest of the 30 years have risen.
So we see that investing in a high-quality index has become one of the best assets in the United States in the past 20 years within a long enough time frame. Judging from the data from 2002 to 2021, the annualized return of the S&P 500 reached 9.5%, surpassing almost all assets and significantly outperforming the 3.6% annualized return of ordinary investors. And compared with REITs, which has higher yields, investment in emerging market stocks and S&P 500 index funds is more convenient and transparent.
We do not think that China's traditional broad-based index will copy the US S&P 500, but in a constantly innovating capital market, some better underlying broad-based indexes may have appeared, which can bring better long-term returns to Chinese holders and will also promote the great development of index funds.
So we chose to open a new account. . .
After seeing a series of product innovations of index funds, objective user needs, and the great development of overseas index funds, we also decided to open a new official account: ETF Research Room.
In this official account, we will end various innovative index fund products and recommend some index fund products with trading value based on market hotspots. In terms of content, this new official account will be different from our first Dianshi Investment, and will be managed by a separate team.
More importantly, we hope to be the "external observer" of the asset management industry for a long time, witness and accompany this best era, provide everyone with valuable thinking, and help the asset management industry move forward continuously!
- end -
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