What are the index funds?

In the complex and changeable market environment, it is difficult to choose the investment target accurately every time, the difficulty of active fund management is increasing, and the probability of outperforming the index is also decreasing. Index funds, by completely copying the index, get the expected annualized expected return very close to the index and bear the risk very close to the index, which is indeed an ideal choice in the bull market environment.

1. What is an index fund?

As the name implies, index funds are fund products with specific indexes (such as Shanghai and Shenzhen 300 Index, S&P 500 Index, Nasdaq 100 Index, Nikkei 225 Index, etc.) as the target. ) as the underlying index, and take the constituent stocks of the index as the investment object, build a portfolio by buying all or part of the constituent stocks of the index, and track the performance of the underlying index. Generally speaking, index funds aim at reducing the tracking error, making the portfolio change trend consistent with the underlying index, so as to obtain the expected annualized expected rate of return roughly the same as the underlying index.

2. What are the types of index funds?

(1) Composite Index Fund.

Composite index fund is the most common and typical index fund in the market. They track the comprehensive indexes that reflect the whole market, such as Shanghai Stock Exchange Index, Shenzhen Stock Exchange Index, Shanghai Stock Exchange Index 180, Shenzhen Stock Exchange Index 100, and the internationally famous Dow Jones Industrial Average and Standard & Poor's Index. Because these comprehensive indexes reflect the average expected annualized expected return of the whole market, they are not only very representative of the market, but also fully disperse the risks of individual stocks, so these comprehensive index funds have become the mainstream varieties of index funds.

(2) Local index funds by industry.

This kind of index fund takes the index reflecting a certain sector of the market as the tracking object, among which the most common index is classified by the size of listed companies, and its corresponding funds are large-cap index fund, medium-cap index fund and small-cap index fund. In addition, there is a more common index fund that is distinguished by investment objectives: according to the style and type of investment objectives, stocks can be divided into value-oriented or growth-oriented stocks, so there are value-oriented index funds and growth-oriented index funds.

(3) Industry index funds.

Some stock price indexes can describe the stock price changes of listed companies in a specific industry, which has produced various types of industry indexes. The index funds that follow these industry indexes are industry index funds, such as high-tech industry index funds, health care industry index funds and so on.

(4) Hybrid index funds.

This kind of fund is a combination of the above types, that is, an index fund with the above industries or sectors as the target.