As we embark on 2025, the arena of index funds continues to evolve, telling fresh stories that pique the interest of investorsA significant highlight has emerged: the launch of the Shanghai Stock Exchange's Science and Technology Innovation Board Comprehensive Index (referred to as the Sci-Tech Composite Index). This index has sparked considerable excitement, following the fervor surrounding the China Securities A500 Index and the resounding interest generated by the Shanghai Stock Exchange 180 IndexWith twelve fund companies racing to set up related ETFs before the official unveiling of the Sci-Tech Composite Index, one can only anticipate the dynamic developments of this sector in the new year.

Initially, some pundits voiced skepticism about the necessity of another index for the tech sector, given the existence of indices like the Sci-Tech 50, Sci-Tech 100, and Sci-Tech 200. However, upon closer examination, it’s evident that the new Sci-Tech Composite Index has the potential to serve as a more comprehensive representation of the innovation board's performanceUnlike its predecessors, which segment the industry by size and liquidity, the Sci-Tech Composite Index intends to select eligible listed companies' securities, thus reflecting a broader perspective on the overall market trends, including dividends.

A standout representative of the innovation board, the Sci-Tech Composite Index brings a unique advantage.

In essence, the Sci-Tech 50 Index identifies 50 leading firms with substantial market value and liquidity, while the Sci-Tech 100 focuses on smaller, yet potentially high-performing firmsThe Sci-Tech 200 extends this range, categorizing an even broader array of companies

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However, the Sci-Tech Composite Index distinguishes itself by carefully curating its sample list to include only those securities that align with the comprehensive goals of representing the innovation board's overall landscape.

The richness of this index lies in its inclusivity; with 565 constituent stocks versus the total of 582 companies on the board, it promises nearly full coverage of the science and technology innovations that China aims to boostFurthermore, it encapsulates varying market capitalization styles—small, medium, and large companies—that contribute largely to the composition of the innovation board.

The constituent stocks speak volumes about representativeness.

With an impressive coverage ratio—97% for market capitalization, 99% for revenue, and 95% for net profit—the data indicates the Sci-Tech Composite Index's alignment with the overall health and direction of the sectorShould investors wish for a balance between market stability and growth potential, this index promises to fulfill those ambitions without sacrificing either element.

Additionally, with six fund companies, including Huatai-PB, filing for ETFs linked to the Sci-Tech Composite Index, the impetus here could be attributed to the recent push for listed companies to increase their dividendsThe universal shift in focus towards higher returns for investors must also be taken into account.

Industry configuration spotlights a precise index positioning.

Reflecting on the success of the China Securities A500 Index, a driving force behind many fund firms' aspirations, one finds that nearly 50% of this index is represented by sectors pertaining to 'new productive forces'—a term indicative of China’s census on futuristic industries—fitting well within the nation’s developmental trajectories.

The Sci-Tech Composite Index echoes this narrative, as it too is woven with a high proportion of 'new productive force' sectors, positioning it to be one not only reflective of innovation but that could likely emerge as the benchmark index for this category in the future

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Data from Wind highlights the index's heavy lean towards electronics, pharmaceuticals, machinery, computer technologies, power equipment, and basic chemicals, collectively comprising over 97% of the total weight of the index.

The prediction stands firm: if the Sci-Tech Composite Index solidifies its role as a benchmark for 'new productive forces,' we can anticipate an influx of funds directed toward itThis influx would mark an exciting entry point for fund companies, enhancing their competitive edge in today’s market.

High profitability expectations coupled with significant R&D expenditures.

The sectors encompassed within the Sci-Tech Innovation Board—spanning semiconductors, power devices, machinery, and pharmaceuticals—are categorized as industries characterized by high growthSuch sectors are expected not just to sustain growth but also yield substantial profit forecastsThe Sci-Tech Composite Index showcases robustness and an all-encompassing variety in terms of its overall performance compared to other high-growth indices, suggesting a forward-thinking investment option.

According to Wind's data projections, the rate of revenue growth and profit margins for the Sci-Tech Composite Index between 2024 and 2026 will surpass those of the Growth Enterprise Market Index and Sci-Tech 50. Especially true for the current and following years, net profit growth is expected to hit striking figures of 67.6% and 37.8%, indicating a clear competitive edge.

Furthermore, the dedication to R&D within the firms comprising the Sci-Tech Composite Index is remarkably high, qualifying it as one of the most R&D-focused broad-based indices available

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Wind's data has consistently shown that these firms have outstripped their counterparts in the Shanghai Composite and Growth Enterprise Market Labs regarding the ratio of R&D expenditures to revenue over the past three fiscal years—an impressive feat fostering confidence in their long-term viability.

With substantial investments in R&D underpinning these projections of profitability, it becomes clear why the Sci-Tech Composite Index can confidently assert itself in the market: the depth of research and innovation is a clear indicator of future success.

Index pioneers lead the way!

Whenever a new index sees a flurry of interest with multiple fund companies setting up related ETFs, I'm often asked which firm I recommendMy consistent answer emphasizes the importance of choosing firms with substantial scale, robust liquidity, and rich experience in index management, just like Huatai-PB is known for.

Coincidentally, Huatai-PB has once again secured its place among the pioneers by filing for their Sci-Tech Composite ETF, which received approval just recentlyAs an industry veteran with over 15 years of expertise in the index market, their portfolio is extensive and includes a range of capabilities—from broad-based indices to specialized thematic investments—demonstrating a systematic approach and consistent performance across their index products.

In the ETF realm, they hold a strong position with well-known products like consumer ETFs, 800 ETFs, and MSCI China A50 ETFs expanding their footprintLikewise, in the field of mutual funds, they have created impactful offerings such as the Huatai-PB CSI 300 Enhanced Index and several others that have both performance and scale to their credit.

It's worth noting two key metrics regarding Huatai-PB's accomplishments in the index field: By mid-2024, they had surpassed 4.1 million clients in managing their index products, while their total assets under management exceeded 130 billion RMB, marking them as a dominant player in the industry.

(Client data derived from 2024 interim reports; management scale sourced from 2024 Q4 disclosures

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