After the bull market in 2025, the A-shares in 2026 are still worth looking forward to. In the context of rapid market style switching, many investment experts believe that ETFs have transformed from an &#34;optional&#34; asset allocation tool into a core vehicle for capturing structural opportunities.
Exchange Traded Funds (ETFs) construct a portfolio of securities that track the changes of the underlying index through full replication or sampling replication strategies. Investors can achieve a basket of securities investment by buying and selling an ETF product. For small and medium-sized investors, the biggest advantage is diversified investment, which eliminates the difficulty of selecting individual stocks and avoids the awkward situation where the index rises but individual stocks do not make money.
In recent years, China's ETF market has developed rapidly. According to the Shanghai Stock Exchange's &#34;ETF Industry Development Report (2026),&#34; by the end of 2025, the number of ETF products listed on domestic exchanges reached 1,381, with a total scale of 6.02 trillion yuan, surpassing Japan to become Asia's largest ETF market. In terms of product types, it covers a variety of categories including broad-based, industry, thematic, strategic, and cross-border ETFs.
Faced with a rapidly developing ETF market that is increasingly rich and even somewhat dazzling, how can investors effectively use ETF tools to better share in the dividends of capital market development? This article organizes five typical questions.
Question of Choice:
How to get started with thousands of ETFs?
For investors who are new to ETFs, looking at more than 1,300 products in the market can feel like holding a menu in a foreign language—seeing the dish names but not knowing how to order. This &#34;overabundance of choice&#34; has become a decision-making barrier.
The key to solving this dilemma lies in establishing a layered screening framework, with two important aspects:
First, determine investment goals and allocation roles. Investors need to clarify whether to use ETFs as core assets for long-term holding or as tactical allocation tools to capture specific opportunities. If it is the former, one can consider tracking broad-based ETFs like the CSI 300 or CSI 500; if it is the latter, one can consider allocating to industry ETFs or thematic ETFs that align with national strategic directions, such as technology innovation, green energy, or thematic ETFs like power grid equipment, cloud computing, and big data. Research shows that adopting a &#34;core-satellite&#34; asset allocation strategy can effectively diversify risks, such as using broad-based ETFs like the CSI 300 and CSI 500 as core assets (accounting for about 60%-70%), allocating to industry ETFs or thematic ETFs that align with national strategic directions (accounting for about 20%-30%), and trying a small amount of cross-border or alternative strategy ETFs to enhance portfolio flexibility (accounting for about 10% or less). A balanced allocation portfolio typically has much lower volatility than a concentrated position in a single asset.
Second, evaluate key indicators of specific products. For ETF products, liquidity and tracking error are core quantitative indicators that affect the investment experience and final returns
Liquidity is primarily measured through trading volume, scale, and premium/discount.
Trading volume is an important indicator of ETF liquidity. Generally, the larger the trading volume, the smoother the buying and selling of the ETF product in the market, indicating better liquidity.
The scale of an ETF is like a &#34;reservoir.&#34; In general, a larger scale indicates more investors participating, making it relatively easier for funds to flow in and out of this &#34;reservoir,&#34; and buyers and sellers can more easily find counterparties to complete transactions. In contrast, small-scale ETFs may face higher costs for investors during trading due to issues like insufficient trading activity and larger bid-ask spreads.
Premium/discount acts as a &#34;warning signal&#34; for liquidity, reflecting the degree of deviation between the ETF price and its net asset value (IOPV). If there is a significant premium/discount phenomenon, it may indicate arbitrage opportunities in the market, but it may also suggest certain liquidity issues with the ETF product. When the price is significantly higher than the net asset value, it may indicate excessive speculation; conversely, when the price is significantly lower than the net asset value, it may reflect poor market expectations. Investors need to closely monitor the premium/discount situation and adjust their investment strategies in a timely manner to avoid losses during periods of insufficient liquidity.
Tracking error is used to characterize the degree of deviation between the ETF's net asset value performance and the performance of the underlying index it tracks. Its core value lies in transforming the ETF's commitment to &#34;passive management&#34; into a quantifiable, comparable objective data, helping investors filter out tools that can efficiently and accurately replicate index returns. Therefore, a smaller tracking error means a higher &#34;fit&#34; of the fund to the index. However, even with the most meticulous management, tracking error is unlikely to be zero. For mainstream broad-based index ETFs, an annualized tracking error of within 0.6% is considered excellent; for some cross-border ETFs, the error may be slightly larger due to factors such as exchange rates and time zone differences.
Investors can check relevant data for the above indicators on exchange websites or professional financial data service platforms.
Risk Question:
Does diversification mean risk avoidance?
For ETFs, many investors have a misconception: that ETFs are a stable or even conservative investment choice because they diversify individual stock risks by holding a basket of stocks.
However, based on market data from 2025, this is not the case. In the second quarter of 2025, influenced by multiple factors, the A-share market experienced a significant adjustment, with the maximum drawdown of the CSI 300 Index exceeding 13%. During this period, various ETFs did not serve as a &#34;safe haven&#34;: the average decline of mainstream CSI 300 ETFs was close to that of the index, while the decline of ChiNext ETFs was even deeper, and the popular semiconductor industry ETFs saw declines exceeding 22% at one point.
ETFs do eliminate the unique non-systematic risks of individual stocks (the &#34;blow-up&#34; risk), but they also expose investors to market systematic risks: when a particular industry encounters systemic changes, such as policy shifts or technological disruptions, companies within that industry are often affected simultaneously, and the volatility of industry ETFs may exceed that of many diversified leading stocks
For example, after the implementation of the &#34;double reduction&#34; policy in education in 2022, education ETFs plummeted over 40% in a single month, while some comprehensive enterprises with cross-industry layouts were relatively less affected. This confirms that the higher the industry concentration, the more fully the systemic risk is exposed. If investors underestimate the volatility of industry ETFs simply because they have &#34;diversified individual stock risks,&#34; they may suffer far greater drawdowns than expected during style switches or industry clearances. Therefore, constructing a diversified ETF portfolio that spans industries, markets, and even asset classes, and using strategies such as regular fixed investment and dynamic rebalancing to disperse systemic risks and resist extreme drawdowns caused by industry rotations or policy shocks, seems to be a more robust choice.
Timing Question: When to Buy and Sell?
Even if the right targets are chosen, timing remains the biggest challenge faced by ETF investors. Market research shows that overly frequent trading often harms long-term returns due to timing errors and high costs; maintaining patience and reducing unnecessary operations is one of the keys to improving ETF investment returns.
A typical case is the investment boom in artificial intelligence themes at the beginning of 2025. A large number of investors chased high prices after related theme ETFs had risen in February and March, and then panicked and sold during the market adjustment in May, ultimately missing the gains that the theme ETFs achieved cumulatively from June to September.
The most effective way to combat the timing dilemma is through disciplined investment strategies, with regular fixed investment being the most operational. Its core logic is that regular investment through mechanical and periodic operations can automatically achieve &#34;buy more at low points and buy less at high points,&#34; thereby lowering the average holding cost over the long term. This strategy forces investors to overcome emotions of fear and greed, avoiding decisions that harm long-term returns due to attempts to predict short-term market trends.
For investors who already hold ETFs, when to sell is also a troubling question. Experts suggest establishing a selling discipline based on investment goals rather than market sentiment. These investment goals can include: target return method—setting a reasonable annual return target (e.g., 8%-12%) and taking partial profits upon reaching the target; rebalancing method—checking the holding proportions every six months or a year and adjusting any parts that deviate from the initial allocation by more than a certain extent (e.g., 10%) to restore the initial risk exposure; fundamental change method—reassessing the holding value when the index tracking rules or core constituent stocks of the ETF undergo fundamental changes.
In summary, the principle of &#34;reducing decision frequency and improving decision quality&#34; can help investors achieve better risk-adjusted returns.
Cost Question:
How Do Invisible Costs Erode Returns?
Generally, the holding costs of ETFs include three parts:
First is the management fee, which is the fee deducted annually from the fund's assets by the fund manager to cover the operating costs and other necessary expenses of the fund manager; second is the custody fee, which is the fee paid to the custodian bank for safeguarding the fund's assets; third is the trading commission, which is the fee paid to brokers by investors when buying and selling ETFs. Commissions are usually calculated as a percentage of the transaction amount, with a range of approximately 2.5‰-3‰
In January 2025, the China Securities Regulatory Commission (CSRC) issued the &#34;Action Plan for Promoting the High-Quality Development of Index Investment in the Capital Market,&#34; which clearly proposed to reduce the investment costs of index funds and to appropriately guide industry institutions to lower the management and custody fees of large broad-based stock ETFs. Subsequently, leading ETF fund managers have successively reduced ETF management fees, and a series of fee reduction measures have ushered in the &#34;low fee era&#34; of ETFs.
ETFs are often regarded as low-cost investment tools; however, even small differences in holding costs can have a significant impact over the long term due to the effects of compound interest.
Currently, the combination of &#34;management fee 0.15% + custody fee 0.05%&#34; has become a common standard for core broad-based ETFs, and the trend of fee reduction has expanded from broad-based products to dividend, technology, cross-border, and other ETFs, becoming the &#34;standard configuration&#34; of mainstream market products. Let's do a simple calculation comparison: assuming investor A chooses a CSI 300 ETF with a management fee of 0.15%, while investor B chooses a similar product with a management fee of 0.5%, under the same conditions, after 30 years, due solely to this 0.35% difference in management fees, investor A's final assets will be approximately 12.5% higher than those of investor B.
In addition to visible costs such as management fees, custody fees, and trading commissions, the hidden costs of holding ETFs also include the bid-ask spread costs caused by frequent buying and selling, which are more pronounced in products with insufficient liquidity. According to relevant research, individual investors incur average annual costs (commissions + spreads) due to frequent trading that account for 1.2%-2.5% of their principal, which is significantly higher than the management fee differences of mainstream ETFs. This means that reducing trading frequency is a more effective cost control measure than simply selecting low-fee products.
A Question of Patience:
How long is &#34;long-term&#34; holding?
&#34;Long-term holding&#34; is one of the most frequently mentioned principles in ETF investment and value investing, but it is also one of the most difficult principles to adhere to in practice. The main issue is that &#34;long-term&#34; means different time spans for different investors.
For the A-share market, how long does it take from the starting point of one bull market to the starting point of the next bull market, or to experience a complete cycle of bull-bear transitions? Currently, there is no authoritative or unified conclusion, but overall, mainstream views concentrate in the range of 7 to 8 years, which roughly provides a quantitative reference for &#34;long-term.&#34;
In reality, the market in 2025 itself is an excellent case for testing patience. After a significant rise in the first quarter, the market experienced a deep correction in the second quarter, with many ETFs giving back most of their previous gains. However, investors who persisted in holding and did not engage in blind operations welcomed a stronger recovery in the third and fourth quarters—looking at the whole year, major broad-based ETFs still achieved significant positive returns.
So, how can one establish investment patience? It is primarily based on three cognitive pillars: understanding market cyclicality—there is no market that only rises without falling; volatility is an inherent characteristic of equity investment; believing in mean reversion—short-term deviations from fundamentals, whether surges or drops, will eventually revert to the value center in the long run; recognizing the power of compound interest—pursuing sustainable reasonable returns rather than unrealistic linear surges
In terms of practical operation methods, it is recommended to try the &#34;quarterly review method,&#34; which involves reviewing the performance of holdings once every quarter to avoid emotional interference from daily price fluctuations; at the same time, establish a &#34;long-term investment notebook&#34; to record the reasons for each purchase and the expected holding period. During market fluctuations, revisit these fundamental reasons instead of just focusing on the market.
For the situation of &#34;the held ETF not rising,&#34; it is necessary to rationally distinguish whether it is a market cycle issue or a problem with the underlying asset itself. If the fundamentals of the tracked index (valuation, profitability, growth) have not deteriorated, then patient holding may be the best strategy; if the fundamental logic of the index has fundamentally changed, then decisive adjustments should be made rather than blindly &#34;persisting.&#34;
The ETF market in 2025 taught investors a vivid lesson: the tool itself does not create excess returns; the key is the proper use of the tool.
In 2026, China's ETF market will continue to deepen. With product innovation, institutional improvement, and in-depth investor education, this tool will play an increasingly important role in household wealth management. For every investor, the most important thing seems not to be finding better ETF products, but to become a better investor—more patient, more disciplined, and more focused on long-term value.
Author: Zhang Yanhua
Source: Financial Review · Wealth, Issue 3, 2026
Editor: Zhang Yanhua
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In the A-share market of 2026, ETFs have become the core tool for capturing structural opportunities. According to a report from the Shanghai Stock Exchange, by the end of 2025, the scale of China's ETF market reached 6.02 trillion yuan, making it the largest ETF market in Asia. Faced with over 1,300 ETFs, investors need to clarify their investment objectives and choose the appropriate type of ETF, such as broad-based ETFs or sector ETFs, to achieve effective asset allocation and risk diversification

The Core "Five Questions" of ETF Investment