ETFs (Exchange-Traded Funds) trade on exchanges and typically track specific indices, combining mutual funds’ diversification benefits with stocks’ intraday trading flexibility. ETF growth extends John Bogle’s (Vanguard founder) “passive investment revolution” — academic research repeatedly demonstrates that over the long term, the vast majority of actively managed funds cannot consistently beat their benchmarks (especially after fees).
## Core ETF Selection Parameters
**Expense Ratio**: the most important ETF selection metric. CSI 300 Index ETFs (e.g., Huatai-PineBridge 300 ETF, 510300) charge approximately 0.05-0.15%, far below active funds’ 1-1.5% management fee + 0.25% custody fee. Over long-term compounding, a 1% fee difference can cause approximately 26% asset divergence over 30 years (assuming 7% annualized return).
**Tracking Error**: the deviation between an ETF’s actual performance and its tracked index; annualized tracking error should be below 0.5% (excellent products are within 0.1-0.2%). Causes of tracking error: timing of constituent stock adjustments, dividend reinvestment treatment, securities lending income, fees.
**Liquidity**: higher daily average trading volume means tighter bid-ask spreads and less price impact from large orders. China’s major broad-based ETFs (CSI 300, CSI 500, CSI 1000, STAR 50) all have daily volumes exceeding hundreds of millions of RMB — sufficient liquidity.
## Asset Allocation Framework
A simple, effective long-term framework: global equities (60-70%, via CSI 300/CSI 500/Nasdaq 100/S&P 500 ETFs) + bonds (20-30%, via government bond ETF/credit bond ETF) + alternatives (0-10%, gold ETF/REITs). Annual or quarterly rebalancing returns each asset class to target proportions — controlling risk while implicitly implementing “sell high, buy low.”
See [Factor Investing Guide](https://sunqi.org/factor-investing-guide-en/) and [Vanguard investment research](https://investor.vanguard.com/investor-resources-education/research).
