In 2025, the broad-based Exchange-Traded Funds (ETFs) are poised for substantial expansion, marking a pivotal moment for investment marketsOn February 17, the initial set of 13 ETFs tracking the Science and Technology Innovation Board (STIB) Composite Index was launched, generating significant excitement within the financial communityAn additional group, including noteworthy editions such as the Jia Shi and Peng Hua STAR Board ETFs, is primed for issuance shortly thereafter, signaling a profound influx of capital and innovation into the market.

Industry analysts assert that the rollout of the STIB Composite Index ETFs is timely and critical, representing a substantial reform in the investment landscapeThis step is seen as part of a broader initiative to deepen reforms across capital markets, facilitate service to technological innovation, and support the development of new productive forcesThe STAR Board has become a magnet for "hard tech" enterprises, fostering an ecosystem rich in innovative potential and attracting an array of institutional investorsGiven its focus on technology-driven sectors, expectations suggest significant growth ahead for the overall market capitalization of the STIB Composite Index.

An Enhanced Tool for Innovation Investing

Since its inception over five years ago, the STAR Board has reached a new milestone with the announcement from the Shanghai Stock Exchange and the China Securities Index Company on January 8, 2025, about the creation of the STIB Composite IndexFollowing this announcement, the first group of ETFs aimed at tracking this index was reported on January 13, culminating in the official release of the index on January 20, and the subsequent approval of twelve initial ETFs on January 22. According to Bosera Funds, the market's need for a more comprehensive index that encapsulates a wider sample of STAR Board-listed stocks has been addressed through the introduction of the STIB Composite Index.

The prospectus for these offerings indicates that most STIB Composite Index ETFs will be capped at a fundraising limit of 2 billion yuan

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The issuance period for prominent funds like the Huaxia and Efund STAR Board Composite Index ETFs is set from February 17 to February 21, allowing just a brief five-day window for capital mobilizationCertain funds, such as the ICBC and FG ETFs, have a later cutoff date of February 28. Recent reports note that the JIC Trust Science and Technology Index ETF has already met its goal of raising 2 billion yuan.

In terms of management fees, the ETFs have been structured to support cost-effective investment strategies in hard technologyFor instance, both the Efund and China Merchants offerings have set their management fee at a competitive 0.15% per annumAdditionally, the fund managed by Guotai Junan is set to enter its issuance period on February 24, with similar favorable fee structures reported.

During a conference on the development of high-quality index investment held on February 14, officials from the Shanghai Stock Exchange reiterated their commitment to enriching the ETF product ecosystemThey emphasized the importance of enhancing collaborative efforts across various market players to ensure that investing in indices plays a critical role in securing the stable flow of long-term investment into A-shares, thereby contributing to the real economy and the construction of a financial powerhouse.

Seizing Opportunities in Hard Technology

The STIB Composite Index serves as a significant benchmark by selecting stocks from qualifying listed companies on the STAR Board, aptly reflecting the overall performance of these companies with consideration for dividendsThis index is characterized by three primary traits: a focus on cutting-edge sectors, comprehensive industry representation, and targeting early-stage firmsAccording to Pang Yaping, General Manager of the Index Research Department at Efund, the introduction of the STIB Composite Index ETF offers investors new and robust tools to capitalize on hard technology opportunities, stimulating capital flows into innovation sectors and facilitating the development of productive forces

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Such a framework ensures a vital connection among technology, industry, and finance.

Delving deeper, Efund's analysis indicates that the "cutting-edge" focus of the index is manifested in its concentration on forward-looking technological innovationsData from Wind reveals that as of February 7, all component stocks of the index belong to strategic emerging industries, with the new generation information technology sector alone accounting for a staggering 58% of the index's weightAdditionally, these index components exhibit high R&D expenditures, averaging over 10% in research costs in 2023.

The "comprehensive" coverage of the STIB Composite Index is highlighted by its inclusion of all 17 primary industries as classified by the Shenwan Data system, along with 44 out of 46 secondary industries—showcasing an expansive sectoral reachFurthermore, the industry's distribution within the index is relatively balancedThe largest industry holds roughly 45% of the weight, while the top three together comprise around 70%, presenting lower concentration compared to the STAR 50 and STAR 100 indicesInformation indicates that leading stocks within the index include established players across the semiconductor, computing, electronics, and healthcare sectors—affording investors a well-rounded investment opportunityThe research from China Merchants emphasizes that the STIB Composite Index is designed to mitigate single-industry cycle risks while promoting diversified investments.

Additionally, the "early-stage" strategy indicates the index's focus on innovation from its inception through deployment, encompassing a wide range of small-cap companies that are often at the forefront of technology developmentNearly 97% of the STAR Board's market capitalization is represented, with over half of the index made up of stocks with market capitalizations below 5 billion yuanThis setup makes it an excellent vehicle for investors interested in seizing early-stage growth opportunities in emerging tech companies.

Skepticism persists as various industry experts comment on the strong market adoption and coverage of the index, culminating in significant long-term allocations

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The introduction of STIB Composite Index ETFs has the potential to infuse new capital into the STAR Board, thereby enhancing the capital markets’ service level to foster core technological innovations within China.

Continuous Expansion of Fund Offerings

The trend isn't confined to STIB Composite Index ETFs alone; a range of additional STAR Board index funds is either currently in circulation or set to launch imminently, including innovative products from entities such as Morgan StanleyOver recent years, the toolkit for STAR Board index investments has notably expanded, and public fund houses are diligently enhancing their offerings within this sectorA study by GF Securities indicated that by the end of 2024, the allocation ratio of actively managed equity funds invested in STAR Board stocks is expected to rise from 10.54% to a historic high of 13.02%.

For instance, Efund has previously introduced products tracking indices such as the STAR 50, STAR 100, STAR Artificial Intelligence, and STAR Growth, representing various scales, sector themes, and investment strategiesSimilarly, Bosera Funds now boasts a diverse product suite that includes the Bosera STAR Board Artificial Intelligence ETF, the Bosera STAR Board New Materials ETF, and the Bosera STAR 50 Index fundThese developments provide investors with numerous choices to capitalize on potential growth avenues within the technology waveAs of the end of 2024, Huaxia Funds has noted that their equity ETF management size has surpassed 650 billion yuan, demonstrating a robust commitment to the STAR sector through multiple ETF offerings.

To conclude, Bosera Funds is optimistic about the direction of capital deployment, emphasizing the need to effectively channel resources into "hard technology" initiatives while bolstering the capacity of capital markets in supporting China’s key technology innovationsWith the approval of new STIB Composite Index ETFs by Huaxia, the ongoing broadening of product lines will serve diverse investor strategies seeking opportunities in the STAR Board’s transformative landscape

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