As market volatility persists, ETFs have emerged as the preferred vehicle for capital inflows. According to Wind data, net inflows into the domestic ETF market reached RMB 494 billion in July, with the top 10 fund managers by ETF scale, including E Fund, collectively attracting nearly RMB 420 billion—accounting for roughly 85% of the total. This highlights a significant winner-takes-all dynamic. With the ETF landscape becoming increasingly competitive, one of the key differentiators lies in meticulous management practices.

Tracking Error: Mastering the Fundamentals

Tracking error measures how closely an ETF mirrors its underlying index. For ETFs tracking the same index, a smaller tracking error signifies a tighter alignment with the benchmark's performance, indicating superior tracking effectiveness. Taking E Fund as an example, in the first half of this year, 20 of its products ranked first in tracking error control among comparable ETFs with the same benchmark. These spanned various categories, including broad-based, sector-specific, cross-border, and style strategy funds, such as the CSI 300 ETF (510310), STAR 50 ETF (588080), Robot ETF (159530), and HK Stock Connect Healthcare ETF (513200). Across multiple tracks like broad-based indices, sector themes, and cross-border investments, E Fund boasts ETFs that lead the industry in tracking error management. Overall, in the first half of 2026, the scale-weighted annualized tracking error for E Fund's equity ETFs stood at 0.30%; extending the horizon, it was 0.17% over the past three years and 0.20% over the past five years, consistently ranking among the top-tier managers within the top ten index fund providers.

Excess Returns: Pursuing the Extra Edge

If tracking error is the fundamental skill, then generating excess returns serves as a valuable bonus. Wind data reveals that among 91 E Fund ETFs with comparable products tracking the same index, 51 ranked first in excess returns during the first half of the year, representing 56% of the total. Most of these also maintained their leadership over the past three and five years. To achieve excess returns, ETFs must not only minimize replication costs through refined management to preserve index gains but also employ strategies such as IPO subscriptions, derivatives application, liquidity compensation, corporate action handling, and smart trading. These approaches aim to explore high-probability, sustainable, and risk-controlled methods to enhance returns, striving to capture small yet relatively certain alpha while staying aligned with the index. For instance, IPO subscriptions are a significant source of excess returns for ETFs. As of July 31, 85 new stocks listed this year all avoided breaking their issue price on debut, with an average first-day gain of 280.8%, marking a decade-high. E Fund's passive index funds actively participated in IPO subscriptions, securing RMB 359 million in allotments by the end of July and generating RMB 1.2 billion in profits, both figures leading the industry. A notable case is ChangXin Technology, which surged 465.8% on its July 27 debut, the largest IPO in STAR Market history. E Fund's 70 passive index funds participated in offline subscription, securing RMB 143 million in allotments, again ranking first in both participation and allotment size. On the listing day, all 61 participating ETFs outperformed their performance benchmarks, with nearly two-thirds achieving excess returns of over 50 basis points.

Long-Term Compounding: How Precision Management Builds Momentum

The incremental gains from meticulous management may seem negligible on a single trading day, but over time, the compounding effect becomes increasingly evident. For example, the CSI 300 ETF (510310) has achieved a cumulative return of 158.87% since its inception in 2013 as of June 30, 2026, outperforming the CSI 300 Total Return Index and significantly surpassing comparable ETFs with similar scale tracking the same benchmark. Over a decade-plus period, funds tracking the same index can yield markedly different final returns. The accumulation of sophisticated management capabilities is not an overnight endeavor. Every step—from portfolio construction to rebalancing execution, from risk management to return enhancement—requires continuous refinement. Moving forward, E Fund aims to build on its precise tracking error control, continuing to explore various strategies for stable excess return generation, ultimately converting the value created by ETFs into tangible benefits for investors.