Core Viewpoint - The article discusses the transformation in China's public fund industry regarding the recognition and application of performance benchmarks, emphasizing the importance of the "Active Share" metric to help investors identify differences in investment strategies and avoid pitfalls associated with "pseudo-active" funds [2][8]. Group 1: Introduction and Regulatory Changes - The article highlights the issue of fund managers in China neglecting performance benchmarks, leading to significant deviations in fund holdings and resulting in poor investor experiences [1]. - The China Securities Regulatory Commission (CSRC) issued an action plan on May 7, 2023, aimed at enhancing the quality of public funds, which emphasizes the central role of benchmarks in defining product positioning, investment strategies, and performance evaluation [1]. Group 2: Active Share Metric - Active Share is defined as a quantitative measure of the difference between a fund's portfolio and its benchmark, calculated by summing the absolute differences in weights of individual securities [4][5]. - The metric allows for a clearer distinction between active management and passive replication, addressing limitations of traditional metrics like R-squared and tracking error [6][7]. Group 3: Current State of Active Equity Funds - As of June 30, 2025, the average Active Share for three categories of active equity funds in China is 89.82%, with 87% of funds having an Active Share above 80% [10][14]. - The article notes that active fund managers often deviate from benchmarks in terms of style, industry, and individual stock selection, leading to high Active Share levels [13]. Group 4: Category Analysis - The average Active Share for large-cap growth, large-cap balanced, and small-cap funds is reported as 89.86%, 86.29%, and 96.26%, respectively, indicating that small-cap funds exhibit significantly higher Active Share [14]. - The article explains that the concentration of large-cap stocks in indices limits the active management opportunities, while small-cap stocks provide a broader range of potential excess returns [14]. Group 5: Case Studies - The article compares two funds within the same category, highlighting significant differences in their Active Share due to varying investment strategies, with one fund maintaining a stable Active Share around 70% and the other nearing 100% [17]. - The contrasting strategies illustrate how fund managers' approaches to portfolio construction can lead to different levels of risk and performance volatility [17]. Group 6: Future Insights - The next article will delve into the relationship between Active Share and fund performance, as well as how to identify strategy drift and "pseudo-active" funds in light of new regulations [23].

Core Viewpoint - The small-cap indices, represented by the CSI 1000 and CSI 2000, have shown strong performance with significant inflows into related ETF products, indicating a robust market sentiment and potential investment opportunities in these segments [1][2]. Group 1: Market Performance - The CSI 1000 index saw 9 stocks hitting the daily limit up, while the CSI 2000 had 28 stocks, reflecting a strong upward trend with respective gains of 0.47% and 0.72% [1]. - The CSI 1000 Enhanced ETF (159680) received a substantial inflow of 3 million in a single transaction, totaling a net inflow of 22.43 million over the past two trading days [1]. Group 2: ETF Performance - Both the CSI 1000 Enhanced ETF (159680) and the CSI 2000 Enhanced ETF (159552) have outperformed their benchmark indices, achieving excess returns of 7.36% and 13.41% respectively from the beginning of the year to June 25 [3]. Group 3: Driving Forces - The market's performance is driven by three main engines: 1. Liquidity and policy support, with multiple reductions in reserve requirements and interest rates enhancing market liquidity, benefiting small and micro enterprises [3][4]. 2. Enhanced strategies in ETFs that utilize active management to generate excess returns through industry rotation, stock selection, and risk control [6]. 3. A favorable environment for growth sectors, with policies supporting AI, robotics, military, semiconductors, and pharmaceuticals, aligning with the majority of the components in the CSI 1000 and CSI 2000 indices [4]. Group 4: Investment Strategy - The current market conditions resemble the bullish sentiment of September 2022, suggesting that growth stocks within the CSI 1000 and CSI 2000 indices are likely to be key focus areas for investors [7]. - Enhanced ETFs are positioned as offensive allocations in investment portfolios, with recommendations to balance risk by pairing with dividend or bank stocks for a better experience [8].

Core Viewpoint - Recent research from Goldman Sachs indicates a significant divergence between small-cap and large-cap stocks in China, reflected in trading volume distribution, performance, concepts, and investor structure [1][11]. Trading Volume Distribution - This week, the trading volume of micro-cap stocks reached a historical high, while the trading volume of the CSI 300 index hit a historical low [1]. Performance Divergence - Smaller market capitalization stocks have outperformed larger ones, with the following week-to-date performance and P/E ratios: - SHCOMP: 0.5%, P/E 14.5 - SSE 50: -0.8%, P/E 10.9 - CSI 300: -0.6%, P/E 12.5 - A 500: -0.4%, P/E 14.5 - CHiNext: -0.4%, P/E 30.5 - STAR50: 0.6%, P/E 139.2 - CSI 500: 1.2%, P/E 28.9 - CSI 1000: 1.7%, P/E 39.6 - CSI 2000: 2.9%, P/E 136.9 - Wind Micro Cap: 3.8% [1]. Concept Divergence - Large-cap indices still reflect market views on economic fundamentals, while micro-cap stocks mainly represent liquidity and retail investor sentiment [2]. Investor Structure Divergence - Micro-cap stocks are primarily dominated by domestic retail investors and speculative funds, whereas large-cap stocks (CSI 500 and above) are mainly led by domestic and foreign institutions [2]. Margin Balance and Fund Activity - Despite a rapid decline in margin balances in April, they have remained around 1.8 trillion yuan in the past two months, significantly above historical averages [4]. - Public funds have notably reduced stock positions following the recent Sino-US Geneva meeting, with the overall stock holding ratio reaching a new low of 70.61% since April [4]. Market Sentiment Indicators - The put-call skew indicator for domestic indices is nearing a one-year high, indicating a lack of confidence in short-term upward movement, while investors are cautiously optimistic about domestic stock indices [9].