Steel and coal ETF slaughter list index fund can really outperform active management?

There were only two trading days in the first week after May Day, and against the falling index, pro-cyclical plates led the rise in turn to become the focus of the market. Steel, coal and other commodity futures prices hit record highs one after another, while the share prices of relevant listed companies strengthened, it also led to a rise in the corresponding theme index funds.

While the net value of the fund has repeatedly reached new highs, the index funds of iron and steel and coal have also quietly achieved the "slaughter list" in the year of the Ox. According to statistics on the increase in net worth from February 18 (the first trading day after the Spring Festival holiday) to May 6, among the equity funds with a management scale of more than 50 million at the end of the first quarter, iron and steel index funds and linked funds accounted for the top four; the fifth and sixth were coal-themed index funds. The quarterly report shows that the above-mentioned funds' active investment market value accounts for no more than 1% of their net asset value, which can be described as a real "lie-win".

Among the active equity funds, Guangfa only ranked seventh in terms of value in the same period, but as announced in the first quarterly report, two coal stocks, China Coal Energy and Yanzhou Coal, are in the top 10 among Lin Yingrui's top 10 stocks, and more than half of them are pro-cyclical concept stocks.

In general, active management funds have a bonus to the professional ability of fund managers, and it is easier to achieve better performance in grasping the market and stock selection than index funds that passively track the underlying index. this "bonus" will also be reflected through the management fees of the fund.

However, at some stages, some thematic index funds may outperform by tracking the outstanding market performance of the industry:

In the second quarter of 2018, CSI 300 fell 9.94%, the CSI Liquor Index rose 19.29%, and the CSI Liquor Index rose 14.02%. China Merchants Zhong Zheng Liquor LOF and Penghua Zhong Zheng Liquor LOF ranked first and second in the equity fund category in that quarter.

In the third quarter of 2018, the Shanghai and Shenzhen 300 fell 2.05%, the China Securities Bank Index rose 8.95% against the market, and seven bank index funds entered the top 10 quarterly gains.

In the fourth quarter of 2020, the CSI 300 index rose 13.60%, while the CSI New Energy vehicle Index rose 51.33% in a single quarter. The four index funds that track the target accounted for four of the top 10 equity funds in that quarter.

For the whole of 2020, the CSI doubled 115.9 per cent, while the ETF rose 125.32 per cent annually, making it one of the top 20 equity funds in the "bull market" of this public offering fund.

However, the rise and fall of the industry index is closely related to the market, and the passive index fund leads the rise accidentally: in the third quarter of 2018, the CSI Liquor Index fell 10.75%, and the CSI Liquor Index fell 10.56%; in the fourth quarter of 2018, the CSI Bank Index fell 9.32%; in the first quarter of 2021, the CSI New Energy vehicle Index fell 12.61%. Most of them outperformed the CSI 300 index in the same period.

However, after the "dissolution" of Penghua Zhong Zheng Liquor ETF, Liquor Group last year, the net growth rate of restoration rights has not yet become positive since 2021, falling by 3.71%.

Steel and coal index funds have taken advantage of the upside of pro-cyclical sectors, but for ordinary investors, the "right" use of index funds may be based on buying in the secondary market.