Index Fund, as its name implies, is a specific index (such as the S&P 500 index, the Nasdaq 100 index, etc.) as the underlying index, and the constituent stocks of the index are the investment objects. A fund product that builds a portfolio of constituent stocks to track the performance of the underlying index.
Operation
The investment operation of an index fund is a process of tracking the index by purchasing the constituent stocks (or other securities) of the index, which mainly includes position building, reinvestment and tracking adjustment. The specific operation process can be summarized into the following aspects:
Choice of Index
Different index funds have different income and risk expectations, so different underlying indexes should be selected to meet the needs of fund investment. You can choose an index reflecting the whole market as the tracking target to obtain the average return of the market, or you can choose a certain index. A specific type of index (such as large-cap stock index, growth index, etc.) is used as a tracking target to obtain corresponding investment returns under the premise of taking corresponding risks.
Portfolio Construction
After the target index is determined, the corresponding investment portfolio can be constructed, and various securities that constitute the corresponding index can be purchased according to a certain proportion. Taking into account factors such as the cost and efficiency of warehouse construction, methods such as full replication, stratified sampling, and industry matching can be used to construct investment portfolios.
Full replication is a method of constructing an investment portfolio completely according to the various securities that make up the index and the corresponding proportions; while stratified sampling and industry matching use statistical principles to select the most representative part of the securities that make up the index. rather than all securities to construct the fund’s portfolio.
Combined Weight Adjustment
Under normal circumstances, the constituent stocks of the underlying index will be adjusted regularly and irregularly, and the addition of new shares, the additional issuance of existing stocks, allotment and other factors will cause the weight of each constituent stock in the underlying index to change. Therefore, the index fund must also Make appropriate adjustments in a timely manner to ensure the consistency of the fund portfolio and the index.
Error Monitoring Adjustment
Tracking error is the difference between the return of an index fund and the return of the corresponding underlying index. Due to the limitations of transaction costs and trading systems, the return of any index fund cannot be completely consistent with the return of the underlying index. Fund managers need to measure and monitor this difference in time to ensure that this difference is stably maintained within a certain range. within. If there is an abnormal deviation, the fund manager shall adjust the investment portfolio plan of the index fund in a timely manner under the premise of fully analyzing the reasons.
