Core Viewpoint - The recent rebalancing of the CSI Dividend Quality Index is a significant departure from traditional index rebalancing methods, focusing on a more strategic approach that emphasizes quality and lower valuations in the selected stocks [1][20]. Group 1: Industry Changes - The rebalancing involved a complete exit from coal and financial sectors, with strong additions from consumer and manufacturing sectors [2][10]. - A total of 21 constituent stocks were adjusted, with both the number and weight of changes around 42% [2][3]. Group 2: Stock Exclusions - Notably, no major bank stocks were retained, and traditional high-dividend sectors like coal and oil were also excluded [5][9]. - The only two financial stocks, China Ping An and China Pacific Insurance, were removed, marking a shift to a "non-financial dividend index" [8][7]. Group 3: Stock Inclusions - New inclusions are primarily from consumer healthcare, machinery manufacturing, and non-ferrous chemicals, establishing a foundation for the index [10]. Group 4: Valuation and Quality Improvements - The rebalancing resulted in a decrease in average price-to-earnings (PE) ratio from 20 to 18, and the median from 21 to 17 [14]. - The average price-to-book (PB) ratio decreased from 3.5 to 3.3, while the median remained at 3.1 [14]. - The average return on equity (ROE) increased from below 17% to above 18% [15]. Group 5: Retained Stocks Performance - The retained stocks in the index showed superior metrics, with average dividend yield and ROE both exceeding those of the newly added and removed stocks [18]. - The average PE ratio of retained stocks was below 0.9, indicating a more favorable valuation compared to the new inclusions [18]. Group 6: Conclusion - The CSI Dividend Quality Index aims to combine low valuations with high-quality companies, making it a benchmark for value investors [23][26]. - The strategy emphasizes the importance of buying into a logical framework rather than relying solely on past performance [25].