Multiple fund management firms are intensifying their efforts to introduce investment products focused on free cash flow strategies. On July 6, Suxin Fund announced the appointment of Bao Haozheng as an additional fund manager for its Suxin CSI 800 Free Cash Flow Index product, who will co-manage the fund alongside Lin Maozheng. Shortly before this, China Universal Asset Management launched its third free cash flow ETF—the 300 Cash Flow ETF China Universal. In recent years, fund companies have consistently increased their allocation to free cash flow strategy products, with such index products becoming a significant direction for innovation in index investing.

According to Wind data, as of July 6, the total number of free cash flow-related products across the market has reached 107 (including 50 feeder funds, 29 ETFs, and 28 ordinary over-the-counter index funds), with an aggregate size of 57.177 billion yuan, representing a growth of 42.79% since the beginning of 2026.

Focusing on Corporate Genuine Cash-Generation Capacity

In terms of product size, among the aforementioned 107 products, ChinaAMC Free Cash Flow ETF currently holds the largest size at 13.798 billion yuan. The sizes of Guotai Asset Management Cash Flow ETF, China Southern Free Cash Flow ETF, Dacheng CSI Cash Flow ETF, and Huatai-PineBridge All-Share Cash Flow ETF are 3.969 billion yuan, 2.515 billion yuan, 2.381 billion yuan, and 2.250 billion yuan, respectively.

Several fund companies have already established systematic product lineups. Wind data shows that China Asset Management Co., Ltd. has six free cash flow-related products with a combined size of 25.255 billion yuan, ranking among the industry leaders. The total sizes of related products under Huatai-PineBridge Fund Management Co., Ltd., China Universal Asset Management Co., Ltd., and Guotai Asset Management Co., Ltd. are 9.460 billion yuan, 6.476 billion yuan, and 5.776 billion yuan, respectively.

"Free cash flow typically refers to the difference between the cash flow generated from a company's operating activities and its capital expenditures. It represents the cash that a company can truly freely allocate without affecting its ongoing operations and development," a representative from China Universal Asset Management explained. Free cash flow is one of the key metrics for assessing a company's financial health and profitability. Companies with strong free cash flow conditions generally possess more genuinely available funds. This not only supports their own development but also allows them to navigate market volatility more comfortably and continuously create value for shareholders through dividends, share buybacks, and reinvestment.

Zeng Fangfang, Public Fund Product Operations at Shenzhen Paipaiwang Fund Sales Co., Ltd., stated that the rapid expansion of free cash flow-themed ETFs and feeder funds results from the convergence of two factors. On one hand, the market's investment logic is shifting from a sole focus on long-term growth narratives to placing greater emphasis on corporate earnings quality and operational resilience. On the other hand, the free cash flow indicator can effectively measure a company's genuine cash-generation capacity, aiding in the selection of high-quality assets with solid profit foundations and superior financial quality.

Zeng Fangfang believes that, against the backdrop of policies encouraging listed companies to enhance their return capabilities and long-term capital prioritizing high-quality asset allocation, free cash flow strategies exhibit a certain degree of alignment. These products, through an index-based methodology, incorporate factors such as corporate earnings quality, capital expenditure efficiency, and cash generation capacity into their screening framework. This helps meet investors' allocation needs for stable equity assets.

Differentiation from Dividend Strategies

The rapid expansion of free cash flow products is also related to the market's focus on dividend strategies in recent years. While there is some overlap in the constituent stocks of the two strategies, their stock selection logics differ.

Sun Heng, Director of Morningstar (China) Fund Research Center, noted in an interview that dividend indices primarily use cash dividend amount, dividend yield, and dividend sustainability as core stock selection criteria, placing more emphasis on current stable dividend returns. In contrast, free cash flow indices focus on the genuine, distributable cash flow generated from a company's operating activities, prioritizing the company's endogenous cash-generation capacity, potential for sustainable dividends, and flexibility in capital expenditures.

This implies that free cash flow strategies are not simply a replication of dividend strategies. Sun Heng indicated that for some companies with high dividends but under cash flow pressure, or those relying on debt to fund dividends, the free cash flow metric can serve as a screening tool. Furthermore, in terms of sector distribution, free cash flow indices may include more stocks from growth manufacturing, technology, and other sectors that possess ample operating cash flow but currently have lower dividend payout ratios. Dividend indices, however, tend to be more concentrated in traditional high-dividend sectors such as utilities and finance.

The representative from China Universal Asset Management stated that, from a fundamental perspective, relevant free cash flow indices balance earnings quality and growth potential. Taking the 300 Cash Flow Index as an example, it demonstrates relatively strong profitability, with its ROE (Return on Equity) metric consistently higher than those of the benchmark index and dividend indices. Simultaneously, compared to the CSI Dividend Index, the 300 Cash Flow Index also shows superior performance in revenue growth, reflecting its consideration of growth potential alongside its focus on profitability.

Several interviewees believe that as the number of free cash flow-related products increases, competition in this segment is expected to gradually shift from "first-mover advantage in product launches" to "refined operations." On one hand, leading fund companies, leveraging their distribution channels, brand strength, and scale advantages from early-mover products, are likely to further consolidate their market positions. On the other hand, small and medium-sized fund companies can still seek breakthroughs through differentiated indices, segmented broad-based indices, ETF feeder funds, and investor education and engagement services.

In Zeng Fangfang's view, the expansion of free cash flow products reflects that innovation in the public fund industry's index products is gradually shifting from singular thematic or sector-based layouts towards a greater emphasis on corporate quality, cash returns, and long-term value creation. Looking ahead, as investors' attention to corporate earnings quality and genuine cash generation capacity increases, free cash flow strategies are expected to occupy a more distinct position within the equity index product ecosystem.