There is a very important indicator when selecting ETFs, but many investors are unaware of it.

Tracking error, which is the gap between an index fund and the index it tracks. The smaller the error, the stronger the fund manager's management ability.

"I thought the CSI A500 Index might become popular, but I didn’t expect it to be this hot," said a representative from a mutual fund company’s e-commerce channel during a recent industry exchange.

As this insider noted, the CSI A500 Index set a record for the fastest breakthrough of 100 billion yuan in scale among domestic index-related funds in just over a month.

Wind data shows that as of October 30, the total scale of 10 CSI A500ETFs, including $China Southern CSI A500 ETF(159352.SZ), has reached 61.5 billion yuan. Among them, the net inflow of these 10 funds on that day alone hit 7.66 billion yuan, a record high since their listing. Additionally, the scale of 20 CSI A500 off-exchange funds currently being issued has also exceeded 42 billion yuan.

This means that the total scale of funds tracking the CSI A500 Index has surpassed the 100 billion yuan milestone.

01 The Craze for Broad-Based ETFs

In fact, even before the CSI A500 Index funds broke the 100 billion yuan mark, the CSI A500ETF had already demonstrated strong appeal.

On October 29, among the top 10 ETF products ranked by net inflow, six were CSI A500ETFs.

The popularity of these products is partly due to the unique features of the CSI A500 Index they track, such as industry balance, coverage of emerging sectors, ESG investment principles, and connectivity. It’s also closely tied to the widespread promotion of broad-based ETFs by major fund companies in recent years.

Compared to other types of ETFs, broad-based ETFs offer extensive market coverage, risk diversification, and low management fees. The concept of entering the market through broad-based ETF investments has gradually gained traction.

Taking the CSI A500ETF as an example, according to the listing announcements of the first 10 CSI A500ETFs, during their fundraising period, five of them had individual investor participation rates exceeding 75%, with two even surpassing 80%. This high proportion of individual investors reflects the inclusivity of ETF products, indicating that more and more individual investors are willing to participate in ETF investments.

This trend is further corroborated by data from JD Finance.

After the unexpected implementation of the "924" policy, the A-share market experienced a long-awaited rally.

From September 24 to October 10, the daily growth of new fund users on the JD Finance platform surged more than fourfold compared to the previous two weeks.

Among these new fund users, young people accounted for over 70%, with investors aged 26 to 35 making up more than 40% and those aged 18 to 25 close to 30%.

In terms of investment strategies, they showed a preference for broad-based ETFs like the CSI 300 and CSI A50.

02 The Overlooked Metric

This shift in investment behavior may be related to investors' deepening understanding of the market in recent years.

Investors have gradually realized that broad-based ETFs offer advantages such as risk diversification and better reflection of overall market trends. They’ve come to understand that when choosing ETFs, they should prioritize larger-scale products because greater scale means stronger liquidity and easier trading.

It’s like choosing bottled water when thirsty—the taste differences aren’t that significant, and brand loyalty might play a role, but convenience of purchase often becomes the deciding factor.

For ETFs, when tracking the same index, better liquidity and faster execution translate to a better user experience.

However, many investors may not know that professional fund rating agencies consider another key metric when evaluating index funds like ETFs—tracking error, which measures the gap between the index fund and the index it tracks.

Generally, the absolute value of an ETF’s daily tracking deviation should be less than 0.2%, and its annualized tracking error should not exceed 2%. The smaller the error, the stronger the fund manager’s management ability.

In this regard, Southern Fund has a clear advantage. According to data from China Merchants Securities Fund Evaluation Center, Southern’s stock ETFs had the smallest tracking error over the past decade, ranking first in its category. (Data as of March 31, 2024; metric: passive investment—stock ETFs—size-weighted tracking error; ranking: 1/18 over the past decade.)

Extending this to the broader index fund universe beyond ETFs yields similar conclusions.

According to a public fund company rating report for Q2 2024 released by JIAN Fund Evaluation Center in early August, Southern Fund’s index funds received the highest five-star rating. A higher star rating indicates stronger index fund management capabilities.

03 The Secret Behind the Success

Behind these achievements lies Southern Fund’s high-quality team and scientific investment research system.

Currently, Southern Fund’s index team consists of 26 members, with core fund managers averaging 10 years of experience. The team includes professionals with backgrounds in mathematics, computer science, physics, financial engineering, and finance, covering the entire process of index product development, quantitative research, and fund investment management.

In the fields of artificial intelligence, financial analysis, and quantitative technology, Southern Fund’s index team also has core personnel providing research, data, and strategy support for investments.

In actual index operations, the team has independently developed a comprehensive, in-depth quantitative research platform to achieve scientific, process-driven, and standardized quantitative strategy development and index product design. Through meticulous and professional investment management, the team strives to achieve the target index’s return at the lowest cost while minimizing tracking deviation and error.

Thanks to this high-quality team and scientific system, Southern Fund’s index management scale ranks among the industry’s leaders. At the same time, Southern Fund continues to expand its ETF product categories to meet investors’ diverse needs.

Currently, Southern Fund’s index products cover most of the A-share market’s capitalization, forming a comprehensive layout led by the 500ETF and 1000ETF, encompassing full-market, sector-themed, cross-border, factor, enhanced, and commodity-based products. This provides investors with a one-stop asset allocation toolkit.

Now, with the rise of the "A-Series" indices represented by the CSI A500 Index, Southern Fund is actively participating. After being among the first to launch the CSI A500ETF (code: 159352), the company has also introduced the CSI A500 Index feeder fund, launching the Southern CSI A500ETF Feeder (Class A: 022434, Class C: 022435), offering another option for off-exchange investors looking to participate in the CSI A500 Index.