In the ever-evolving landscape of financial markets, the rising prominence of artificial intelligence (AI) has stirred tremendous interest among investors, particularly when it comes to funds tracking AI-related indicesRecently, two distinct indices, each focused on computing power, have emerged as potential frontrunners in the investment community, each showcasing unique characteristics in terms of size, industry composition, and public fund penetration levels.
On May 23, an intriguing development unfolded within the investment sector when eight prominent fund companies submitted applications for an ETF that aims to track the China Securities Computing Power Infrastructure Index (hereafter referred to as "CSI Computing Power Index"). Before this occasion, on April 14, E-Fund had already signaled its intention by filing for an ETF linked to the National Securities Computing Power Infrastructure Index (hereafter referred to as "NSI Computing Power Index"). The excitement around these ETFs suggests a burgeoning interest in the computing power segment, likely fueled by a larger narrative surrounding the advancements in AI.
As of May 26, data indicated that the two computing power indices had demonstrated remarkable performance so far in 2023, with increases of 46.03% and 18.50%, respectivelyThe price-to-earnings (PE) ratios for these indices stood at 20.64 times and 53.82 times, shedding light on their valuation amidst climbing stock pricesHowever, an essential question arises: how do these two indices diverge in characteristics and what investment scenarios might they present within their respective sectors?
Firstly, it is vital to note the contrasting sizes of these indicesThe CS Index, as of the end of the first quarter, accounted for a total circulating market capitalization of approximately 1.39 trillion yuan, while the NS Index commanded an impressive 2.58 trillion yuan, making the former a mere 53.88% of the latter's value
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Despite the inclusion of 50 stocks in both indices— with 15 stocks overlapping, which include notable names like Inspur Information and Sugon— the underlying industry compositions reveal a significant divergence.
In terms of industry distribution, according to the Shenwan secondary industry classifications, the NS Index encompasses six different sectors including semiconductors, computer equipment, software development, communication equipment, IT services, and military electronicsConversely, the CS Index spans eight sectors by adding communication services and other power supply equipment industries to the aforementioned sixThis broader industry range for the CS Index might make it more appealing for diversified investment strategies, potentially exposing investors to a wider array of growth opportunities.
Taking a closer look at the industry weights of these indices as calculated from first-quarter circulating market capitalizations, the top three sectors for the CS Index are dominated by communication equipment, communication services, and IT services, which together account for 32.64%, 26.48%, and 15.58% respectivelyIn contrast, the NS Index's top three sectors— semiconductors, computer equipment, and software development— have considerably larger shares at 40.59%, 22.43%, and 12.81%. The weight placed on the semiconductor industry within the NS Index is particularly notable against the growing global demand for chips in various technological applications.
From a performance standpoint, the statistics reveal that the CS Index outperformed in the first quarter of 2023, reporting combined revenues and net profits of 590.1 billion yuan and 44 billion yuan, respectivelyThis marks year-on-year growth rates of 6.88% and 6.76%. In stark contrast, the NS Index experienced a decline in profitability, with revenues totaling 176.5 billion yuan and net profits at 8.5 billion yuan, translating to year-on-year declines of 5.43% and 26.82%. Yet, when the timeframe expands to include 2020-2022, the NS Index takes the lead, suggesting varied performance trends depending on the analysis period.
Another crucial aspect to evaluate is the market penetration by public funds in these respective indices
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Data from late 2022 indicated that public funds had amassed a holding of 931 billion yuan within the CS Index— accounting for 9.57% of the index’s total circulating market capitalization— while their holdings in the NS Index reached 2.855 trillion yuan, which represented a notable 14.40%. Additionally, significant investments from Hong Kong's northbound trading flowed into both indices, reflecting confidence from overseas investors.
The artificial intelligence narrative continues to evolve, with increasing interest leading to higher allocations within the computing power sectorDuring the first quarter, public funds ramped up their investments considerably, maintaining substantial positions in both indices and expanding their reach into key equities within the AI landscapeAs of the end of March, public funds owned 40 stocks within the CSI Index, representing an over 100% increase in heavy investments in comparison to the previous quarter, significantly outpacing the index's average gainsFor the NS Index, public funds held all 50 constituent stocks, further demonstrating confidence in the sector.
When observing specific industry allocations among public funds, it becomes apparent that while semiconductor stocks garnered substantial estimates, investments were concentrated heavily in communication devices and services, reflecting the anticipated demand within these areas owing to the rapid growth in AI applicationsInterestingly, while performance within the computing power sector has been strong, certain sectors such as software development experienced a decline in equity weights, suggesting a shifting focus among investors based on market conditions.
The ongoing dynamics within the fund landscape further suggest that AI themes are not merely fads but rather integral components of a broader investment strategy
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