China Equity Strategy "Closer look at sector and thematic ETFs and..."

Research evidence excerpt

China Equity Strategy "Closer look at sector and thematic ETFs and..."

still expanding bin.xu@ubs.com

The overall ETF size has shrunk, following material contractions for broad-based ETFs in +86-21-3866 8872

January and April (Figure 5AUMofsectorandthematicindexETFshasincreasednotablyYTD). As of 26 June 2026, AUM of all A-share broad-based ETFs

was Rmb974.7bn, falling Rmb1.7trn from the peak of Rmb2.66trn on 9 January 2026.

Among broad-based ETFs, large-cap categories, mid- and small-cap ones and those

focused on the STAR Market and ChiNext experienced varying degrees of AUM

contractions (Figure 6Broad-basedETFsacrosdiferentstyleshaveexperiencedvaryingdegresofAUMdeclineYTD). In contrast, sector and thematic ETFs have expanded

significantly. We estimate AUM of all A-share sector and thematic ETFs stood at

Rmb1.3075trn as of 29 June 2026, up from Rmb469.4bn at end-August 2024 . In

particular, tech-focused sector and thematic ETFs currently amount to Rmb541.5bn, up

Rmb208.7bn from end-2025. This suggests that, in pursuit of higher return elasticity,

there have been significant flows into sector and thematic ETFs for their more

concentrated holdings, away from broad-based STAR Market and ChiNext ETFs. At the

stock level, the rapid expansion of tech-focused sector and thematic ETFs is increasingly

benefiting leading tech companies. For example, AI ETFs track an index with 50

constituents, with the top 10 aggregating a roughly 60% weighting and the two largest

in weighting terms each accounting for about 10% of the NAV. On a net basis, flows

from AI ETF buyers tend to concentrate in sector leaders, driving up their share prices

(Figure 8MostindustryleadershaveoutperformedtheircorespondingindicesYTD).

Actively managed tech tracking funds growing in size