What is Index Investing?

From the perspective of investment strategies, investments can be divided into two main categories: active investment management and index investment management. Traditional active investing refers to an investment approach where fund managers aim to outperform the market by employing strategies primarily focused on securities analysis and market timing. In contrast to traditional active investing, index investing is an investment model that aims to replicate and track a specific market index, also known as a passive investment management approach.

Characteristics of Index Investing

Diversification

Don’t put all your eggs in one basket. Index investing reduces the impact of risks associated with individual stocks by constructing a portfolio.

Discipline

Index-based products strictly adhere to the composition and weighting of the index, minimizing emotional interference.

Transparency or Objectivity

Indices are constructed based on standardized and transparent rules, with transparent and publicly available selection criteria and weighting methods. Investors can access this information through exchange websites and index provider websites.

Style Consistency

The style of an index remains consistent. During the construction process, periodic adjustment rules are established to ensure the samples always align with the original objectives.

Low Cost

Index-based products are cost-effective, with management fees typically one-third of those of regular open-end funds. Additionally, ETF trading is exempt from stamp duty.