Implications for Active Equity Funds Amid Weakening 'Value Discovery' Function of the CSI 300 Index

1. Market Cap Threshold Rising Year by Year
   : From 8.4 billion yuan (2005) to 101.6 billion yuan (2025), the inclusion threshold means CSI 300 components are increasingly biased toward large-cap, high-liquidity, and institutionally focused targets. Active funds should be wary of the ‘indexed large-cap’ trend leading to herding effects, avoid overcrowding, and instead seek undervalued or growth-oriented leading enterprises in niche sectors aligned with policies among large caps.
2. Weakening ‘Value Discovery’ Function
   : The five-year excess return of newly added components has turned negative, indicating the index no longer continuously drives value revaluation for new entrants. Active funds should discard the assumption that ‘passive inclusion equals arbitrage’ from index component changes, and focus more on bottom-up discovery of fundamental certainty—especially companies not yet covered by the index but with improving profitability, rising ROE, or high-growth paths.
3. Reverse Signal Between Removals and Additions
   : 25% of components are removed within 1-3 years, and removed stocks outperform newly added ones long-term. This suggests the market premium for ‘passive inclusion’ is not durable and may even form short-term price bubbles. Active funds can draw on removal signals: if fundamentals remain on an upward trajectory after removal, it may offer a reverse layout opportunity; meanwhile, stay vigilant about valuation expansion of added stocks after passive capital inflows.

1. Enhance ‘Structural Minor Deviation’ Capability
   : Within the CSI 300 market-cap-weighted framework, active funds can maintain a certain deviation toward ‘low valuation/high ROE’ in the index, use ‘short-term overbuy’ caused by valuation expansion of newly added stocks for timing, and add positions during the valuation repair period after removal.
2. Combine Rebalancing Signals with Fundamental Drivers for Screening
   : Treat index rebalancing as an information filter—for added stocks, judge whether they have real growth support or profit transformation; for removed stocks, focus on whether the removal is driven by liquidity or short-term factors to determine if there is a ‘passive mispricing’ opportunity.
3. Dynamic Position Control and Valuation Risk Management
   : Given the rising inclusion threshold, newly added stocks often have high valuations; active funds should maintain a valuation ceiling model during rebalancing periods to avoid chasing highs driven by passive capital. Using a combination of ‘rebalancing window + valuation model’ allows active reduction of positions during passive crowding and bottom-fishing when valuations return after removal.
4. Seek Niche Areas and Growth Paths Where ‘Value Discovery’ Still Exists
   : The weakening of the index’s ‘value discovery’ function will enhance funds’ ability to explore non-index core assets (e.g., emerging industries, innovation-driven mid-cap stocks). Active funds should strengthen research coverage, combine rebalancing data with industrial policies and profit cycles, and capture growth stocks not yet covered by the index.

1. Track Passive Capital Concentration
   : Current passive product scale exceeds 1.3 trillion yuan; active funds need to monitor passive capital movements, especially the ‘inflow/outflow-valuation’ linkage during rebalancing windows, to adjust their positions.
2. Dynamically Monitor Post-Inclusion Performance and Risks
   : Continuously track the profit quality and leverage of newly added components, identify whether it is an ‘inclusion-led correction’ or ‘post-inclusion pullback’ pattern, and adjust risk control strategies promptly.
3. Increase Weight of ‘Rebalancing Factors’ in Multi-Factor Models
   : Incorporate ‘whether newly added’ and ‘whether removed’ factors along with valuation and profit growth into the model to distinguish between short-term popularity and long-term value, improving stock selection accuracy.

In an environment where the CSI 300 Index’s ‘value discovery’ function is weakening and component market-cap thresholds are rising, active equity funds should focus on stronger fundamental judgment and valuation sensitivity, combine index rebalancing signals to build more differentiated portfolios with clear risk control, in order to achieve stable long-term excess returns in a passively dominated market structure.