On May 16, the ETF Investment Trading White Paper (2023) released by the Shenzhen Stock Exchange showed that in 2023, the number and scale of domestic ETF market products reached a new high. The tool attribute of ETFs is increasingly recognized by investors, and various types of funds are entering the market through ETFs, continuously introducing incremental funds to the market. The net inflow of funds into non-monetary ETFs for the whole year reached 5696.76 billion yuan. At the same time, the concept of index investment is gradually popularizing, and the group of ETF investors continues to grow rapidly. The number of holders in the Shenzhen ETF market reached 3.28 million, a 16% increase from the end of 2022. The overall trading activity in the ETF market is active, with a total trading amount exceeding 27 trillion yuan, reaching a historical high. Structure of ETF market investors 1. The number of holders in the Shenzhen ETF market continues to grow In recent years, the concept of index investment has been continuously popularized, and more and more investors choose to use ETFs, a low-cost, high liquidity, and low-threshold investment tool, to participate in on-market investments. By the end of 2023, the number of ETF holders in Shenzhen had reached 3.28 million (excluding feeder funds), a 16% increase from the end of 2022 and a 6.5-fold increase from the end of 2018. As investors trading stocks gradually participate in ETF investments, the number of ETF holders continues to grow steadily year by year. In terms of regional distribution, the distribution of ETF holdings by individual investors in the Shenzhen ETF market shows that regions with higher per capita GDP and disposable income have larger ETF holdings. As of the end of 2023, individual investors in the Shenzhen ETF market are mainly concentrated in the eastern coastal regions, with Guangdong Province, Shanghai, and Beijing ranking as the top three regions in terms of ETF holdings. The Jiangsu, Zhejiang, and Shanghai region has a high proportion of individual investors holding ETFs, totaling more than 30%. 2. Individual investors maintain a majority share of ETF holdings Based on the holding structure through feeder funds, as of the end of 2023, individual investors still account for the majority of ETF holders. In terms of total ETF holdings, individual investors' holdings totaled 1.06 trillion yuan, accounting for 50.87%, an increase of 1.48% from the end of 2022. Among them, individual investors held a total of 1.01 trillion yuan in non-monetary ETFs, a slight decrease of 1.93% from the end of 2022. In terms of holding method, individual investors tend to directly hold ETFs, with individual investors directly holding ETFs totaling 747.94 billion yuan, an increase of 4.71% from the end of 2022. Among them, individual investors directly held non-monetary ETFs totaling 700.76 billion yuan, an increase of 5.39% from the end of 2022. 3. Individual investors have a high proportion of holdings in commodity-type ETFs such as gold In terms of product categories, the proportion of holdings by individual investors in commodity, cross-border equity, domestic equity, currency, and bond ETFs (based on the holding structure through feeder funds) decreases sequentially, with percentages of 73.83%, 62.75%, 54.42%, 22.82%, and 6.37% respectively. Individual investors have a high proportion of holdings in commodity-type ETFs, represented by gold ETFs, reflecting the pursuit of asset attributes that counter risk during equity market volatility. 4. Institutions and individuals prefer broad-based ETFs and industry thematic ETFs Looking at domestic equity ETFs, as of the end of 2023, institutions held a higher proportion of broad-based ETFs, with a total holding of 447.68 billion yuan, accounting for 53.01%. Representative products include Jiashi CSI 300 ETF, Yifangda CSI 300 ETF, Huaxia CSI 300 ETF, Yifangda Growth Enterprise Board ETF, Huaxia Science and Technology Innovation Board ETF, Southern China 500 ETF, and other representative products. Individual investors held a higher proportion of industry thematic ETFs (ETFs tracking industry indices and thematic indices), with a total holding of 384.36 billion yuan, accounting for 66.42%. The main industries and themes included were healthcare and pharmaceuticals, securities companies, and chip semiconductors. ETF market trading situation 1. ETF market trading activity increases, with existing products contributing the majority of incremental turnover In recent years, the ETF market has rapidly developed, with the tool attributes of products gradually recognized by investors, and trading activity continues to increase. In 2023, the total turnover of ETFs reached 27.58 trillion yuan, an increase of 4.67 trillion yuan from 2022, with the total turnover of non-monetary ETFs reaching 20.22 trillion yuan, reaching a historical high. The overall turnover of ETFs in 2023 increased by 4.67 trillion yuan from 2022, with newly listed ETF products contributing an incremental turnover of 0.59 trillion yuan, and existing ETF products contributing an incremental turnover of 4.08 trillion yuan. 2. Significant liquidity advantage of ETFs, significantly higher than the average turnover rate of index component stocks The average turnover rate of ETFs in 2023 was 6.39%, significantly higher than that of stocks and bond markets. When comparing the turnover rates of ETF products and the underlying index component stocks, the overall average turnover rate of ETFs (17 times) is significantly higher than the average turnover rate of the underlying index component stocks (about 2 times). 3. Equity ETFs have the highest turnover, with a significant increase in trading activity of bond ETFs The trading activity of various types of ETFs continues to differentiate in 2023. Compared to 2022, the turnover of stock ETFs, bond ETFs, and cross-border ETFs all increased to varying degrees, while the turnover of currency ETFs and commodity ETFs decreased. Specifically, the annual turnover of stock ETFs reached 10.99 trillion yuan, accounting for 39.85% of the total ETF turnover, a slight decrease compared to 2022. The annual turnover of bond ETFs reached 4.53 trillion yuan, surpassing cross-border ETFs, with the proportion of turnover in ETFs increasing significantly from 7.18% in 2022 to 16.43%. The trading activity of cross-border ETFs also significantly increased, with an annual turnover of 4.33 trillion yuan. The turnover of currency ETFs and commodity ETFs continued to decline, reaching 7.37 trillion yuan and 0.36 trillion yuan, respectively. Broad-based ETFs have a higher turnover than industry thematic ETFs in 2023.The wide-based index, which has a relatively scattered industry distribution, has become a choice for more investors, leading to an increase in trading activity of broad-based ETFs. Looking at the whole year, in 2023, the annual trading volume of broad-based ETFs reached 5.84 trillion yuan, exceeding the 4.87 trillion yuan of industry-themed ETFs.Bonds ETF Turnover Continues to Rise In 2023, the value of bond asset allocation increased in the overall environment of declining interest rates. Bond ETFs, as alternative tools for on-exchange cash management, have gained increased attention. Although the number of products is limited (19), the trading activity has increased significantly. The total turnover of bond ETFs in 2023 has rapidly increased from 1.65 trillion yuan in 2022 to 4.53 trillion yuan in 2023, and the average turnover has also significantly increased from 0.10 trillion yuan in 2022 to 0.24 trillion yuan. ETF Fund Flows 1. Non-monetary ETF market net inflows hit a historic high In 2023, amid continued fluctuations in the A-share market, ETFs expanded against the trend, achieving net inflows of funds. The overall net inflow of non-monetary ETF market was 569.676 billion yuan for the whole year, marking three consecutive years of net inflows and reaching a historic high. With the continuous development of the domestic capital market, ETFs have been widely recognized by institutional and individual investors for their low fees and convenient trading, and the trend of capital participation in the market through ETFs has become significant. 2. Broad-based ETFs become the main force of fund inflows In 2023, ETFs as a whole achieved net inflows of funds, mainly contributed by stock ETFs, among which broad-based ETFs became the main force of fund inflows, accounting for 64% of the annual net inflows. In terms of leading products in net inflows, broad-based ETFs represented by the Shanghai and Shenzhen 300, ChiNext 50, and Growth Enterprise Market (GEM) ETFs, serving as important tools for contrarian layout of large-cap and technology growth sectors, saw significant increases in holdings in 2023, with their share prices rising against the trend. Industry-themed ETFs mainly focused on technology and pharmaceuticals, as both sectors experienced significant pullbacks in 2023, attracting continuous inflows of funds. Cross-border stock ETFs mainly tracked the Hang Seng Internet ETF, Hang Seng Technology ETF, and Hang Seng Healthcare ETF in the Hong Kong stock market, which saw a continuous decline over the past three years, with the valuation of the main Hong Kong indices returning to historically low levels, thus attracting a large influx of funds. In terms of products leading in net outflows, Monetary ETFs saw the highest net outflows of funds in 2023. Due to the increased attractiveness of equity market valuations, some funds flowed from monetary ETFs into stock ETFs. Equity ETFs such as infrastructure and coal ETFs experienced net outflows of funds. Real estate, as a drag on the current domestic economy, saw large net redemptions in infrastructure ETFs. Meanwhile, high dividend assets such as coal, with significantly better performance than the overall market, faced pressures to take profits, resulting in net outflows of funds. ETF Market Performance 1. ETF net asset values and prices overall decline In 2023, the average market price of ETFs in the secondary market fell by 6.47%, while the average net asset value fell by 6.43%. Influenced by market differentiation, ETF performance varied, with commodity ETFs, bond ETFs, and monetary ETFs achieving positive returns for the year, with average net asset values increasing by 13.28%, 3.18%, and 1.85% respectively in 2023. Stock ETFs saw the most significant decline in average net asset values, down by 8.2% in 2023, while cross-border ETFs also experienced losses, with an average net asset value decline of 1.46%. 2. ETF price-to-net-asset value deviations overall narrow In 2023, the deviation of ETF market prices relative to fund net asset values further narrowed, with an average absolute premium/discount value of 0.0045 yuan, narrowing by 0.0028 yuan from 2022 (0.0073 yuan). From the perspective of product types, the deviation of stock ETF prices from net asset values is relatively low and shows a narrowing trend, reaching 0.0006 yuan in 2023, a decrease of 0.0004 yuan from 2022 (0.0010 yuan); bond ETFs, monetary ETFs, and commodity ETFs decreased by 0.0653 yuan, 0.0139 yuan, and 0.0011 yuan respectively compared to 2022; cross-border ETFs increased by 0.0002 yuan from 2022. 3. Cross-border and animation-themed ETFs lead in price gains In 2023, the ETFs with the highest price increases were mainly cross-border ETFs and game-themed ETFs within stock ETFs. For cross-border ETFs, the AI boom drove the technology sector in US stocks, with the Nasdaq 100 Index soaring, leading to strong performances by several Nasdaq 100 ETFs, with gains exceeding 50%. In stock ETFs, benefiting from the widespread application of generative AI technology, animation game ETFs saw the highest price increases, with several animation game ETFs seeing gains of over 30%. 4. Travel and new energy-themed ETFs lead in price drops In 2023, the recovery of the tourism market fell short of expectations, with travel-themed ETFs leading in price declines, with two products experiencing declines of over 35%. Additionally, due to the short-term imbalance in the supply and demand dynamics of the industry, new energy-themed ETFs such as photovoltaic, new energy, and battery all experienced comprehensive declines. Shenzhen ETF Market Liquidity Service Business Situation 1. ETF liquidity service providers approach full coverage In 2023, the coverage rate of Shenzhen ETF product liquidity service providers continued to increase. By the end of 2023, the number of ETFs covered by Shenzhen liquidity service providers reached 348, with a coverage rate of 99%, an increase of 4% from the coverage rate in 2022. 2. ETF liquidity service business highly concentrated Currently, the vast majority of ETFs providing liquidity services are covered by the top ten liquidity service providers. By the end of 2023, seven liquidity service providers covered over 100 Shenzhen ETF products, namely Citic Securities, GF Securities, Huatai Securities, Founder Securities, CSC Financial, CMB Securities, and Haitong Securities. The coverage of the top five liquidity service providers has reached 99.42%, with the coverage of the top ten liquidity service providers at 100%.Number of ETFs serviced by service provider.Increase in the number of liquidity providers for single ETFs The average number of liquidity providers for Shenzhen ETFs increased from 2.44 at the beginning of 2019 to 5.29 at the end of 2023. Among them, the number of ETFs with 5 or more liquidity providers increased from 2 at the beginning of 2019 to 128 at the end of 2023, accounting for 37% of the total number of Shenzhen ETF products, covering all key categories and varieties. ETF trading volume on the rise By the end of 2023, the number of existing ETFs in Shenzhen increased to 350, with daily average trading volume reaching 21.6 billion RMB and the average daily trading volume per product increasing to 0.62 billion RMB. Compared to 2022, the daily average trading volume for the entire year of 2023 increased by 38.64%, with liquidity growth significantly prominent. Further enhancement of ETF market liquidity through mainstream liquidity provider mechanism In December 2023, in order to further enhance liquidity in the Shenzhen ETF market, the Shenzhen Stock Exchange introduced the mainstream liquidity provider mechanism, designating qualified securities firms or other institutions as lead market makers. This enables the market to receive higher quality buy and sell price services, enhancing market activity and price stability in the ETF market. In 2023, the mainstream liquidity provider mechanism was implemented for 10 days, with 8 products from 4 ETF managers introduced to the system. More ETF products will be introduced to the mainstream liquidity provider mechanism in the future to better leverage the liquidity provision role of liquidity providers.