The truth behind why the China Securities Value 100 Index, as a value index, offers better long-term returns

Why can quarterly rebalancing frequency accurately capture valuation recovery opportunities?

In the market, the two main ETFs tracking large-scale value style indices are the Guozhen Value 100 Index and the Zhongzheng Guoxin Value Index. Many investors wonder: are these two indices really that different despite both being called “value”? Yes, they are! Since 2013, the Guozhen Value 100 has achieved an annualized return of 18.4%, while the Zhongzheng Guoxin Value has returned 12.9%, a difference of 5.5% annually.

Historical returns comparison of value indices

Historical trend of value indices

Data source: Wind, as of March 18, 2026

Many investors have already noticed the impressive long-term performance of value style indices, but they are not very familiar with how these indices are constructed. Long-term returns, holding experience, and downside resilience are surface-level factors; the construction methodology is the core DNA. Today, by comparing the construction schemes, let’s see where the excess returns of the Value 100 come from.

1. How is value defined: Are we buying value or shifting towards quality?

The essence of value investing is “buying good assets at sufficiently cheap prices,” with the core being “undervaluation.” However, the two indices fundamentally differ in their definition of “value.” Although both use P/E ratio and dividend yield in stock selection, Guozhen Value 100 also incorporates free cash flow yield, while Guoxin Value applies stricter ROE requirements.

Comparison of construction schemes

First, look at Guozhen Value 100, an index deeply rooted in value: it focuses solely on “undervaluation, high dividends, solid cash flow”—these three core value factors—using a three-dimensional stock selection of “high dividend yield + high free cash flow yield + low P/E ratio,” making its style more pure. Sufficient free cash flow is a prerequisite for a company’s future dividend sustainability. By adding the “free cash flow factor,” Value 100 ensures its constituent stocks maintain the ability to continue paying dividends, which explains why its annual dividend yield is 5.6%, significantly higher than Guoxin Value’s 4.0% and even surpassing Zhongzheng Dividend’s 5.0%.

Return source breakdown

Data source: Wind, December 8, 2017 (release of Zhongzheng Guoxin Value Index) – March 13, 2026

Next, look at Zhongzheng Guoxin Value. Although it appears to be a value index, it actually exhibits a significant quality style bias: it imposes a strict ROE threshold—an average ROE (TTM) over the past six periods of no less than 12%, and no less than 8% in any single period. This is a typical quality factor screening: first identify high-profitability companies, then evaluate valuation. This leads to three issues: First, high-ROE companies have already been priced with a premium by the market, making them less likely to be “deeply undervalued” and less capable of valuation recovery. In the long-term return of Value 100, valuation recovery contributed 5.8%, while Guoxin Value only contributed 2.5%, more than halved. Second, the high ROE constraint causes it to miss many cyclical lows, undervalued stocks with huge recovery potential, and instead risks hitting the “high ROE collapse” trap—once a company’s ROE declines, it faces a double whammy of valuation and profit decline. Third, the quality tilt amplifies index volatility; in poor macro environments, it can significantly drag performance. For example, in 2022, Guozhen Value 100 rose by 1.7%, while Guoxin Value fell by 10.1%.

2. Weighting method: factor weighting vs. equal weighting

The weighting method may seem like a detail, but it directly impacts drawdowns, liquidity, and holding experience—one of the key differences between Value 100 and Guoxin Value.

Guozhen Value 100 uses a tilt-weighted approach based on “value factor × free float market cap,” which ensures liquidity while giving higher weight to the value factor. This approach maintains the core of deep value investing and safeguards liquidity. Looking at the market cap distribution: stocks under 10 billion yuan account for only 2.12%, virtually excluding less liquid A-shares. Even in extreme market conditions, there’s no risk of a “sell-then-can’t-sell” stampede, giving it inherent downside resistance.

In contrast, Zhongzheng Guoxin Value uses equal weighting, which sounds “more balanced and less concentrated,” but naturally tilts toward small- and mid-cap stocks. During liquidity crises, such as early 2024, Guoxin Value experienced a maximum drawdown of 7.2%, higher than Value 100’s 4.4%.

Comparison of index performance in early 2024

Data source: Wind, January 1, 2024 – February 28, 2024

3. Rebalancing frequency is crucial: quarterly rebalancing is the soul of deep value

This is the core difference between the two indices and the ultimate secret behind Value 100’s ability to consistently generate excess returns. What is the essence of a deep value strategy? It’s not just holding undervalued stocks; it’s buying low and selling high: buy when stocks are undervalued, sell when valuation recovers, then switch to new undervalued stocks, repeating the cycle and pocketing the valuation recovery gains. Rebalancing frequency directly affects whether you can do this.

Guozhen Value 100 rebalances quarterly, in March, June, September, and December; Zhongzheng Guoxin Value rebalances semi-annually, only in June and December. What seems like a small difference—two rebalancing sessions per year—becomes critical in the highly rotational A-share market. A sector’s valuation recovery often completes within 1-2 months, followed by a period of oscillation and then valuation decline. Changes in macro and geopolitical factors can happen suddenly. With only twice-a-year rebalancing, the index risks missing timely profit-taking, watching gains evaporate.

Taking the latest March 2026 quarterly rebalancing of Guozhen Value 100 as an example, the core actions focused on two key moves: first, significantly reducing exposure to the nonferrous metals sector, which had surged in the first quarter and whose valuation had become less attractive, effectively avoiding the sharp decline this week; second, increasing positions in banks and coal sectors, which still had low valuations.

This rebalancing precisely captured the market’s core theme influenced by the Middle East situation: energy supply tightening, with oil prices expected to rise, and domestic oil and gas companies’ profitability highly certain; coal benefiting from substitution demand due to rising oil and gas prices; while industrial nonferrous metals likely face demand slowdown in stagflationary environments.

Value 100 industry distribution

Data source: Wind, as of March 16, 2026 (latest rebalancing of Value 100)

For example, in the nonferrous metals sector, during the ongoing rally, Guozhen Value 100 strictly adhered to value investing discipline. As the sector’s valuation continued to rise, it steadily realized gains and gradually reduced holdings. In December 2025, as the sector’s earlier gains pushed the index’s nonferrous metal position above 10%, the index decisively took profits, reducing the position to 7.7%. By the latest March 2026 rebalancing, the sector’s valuation had risen again, pushing the position back to 8.4%, but this time, the index cut the nonferrous metals position to below 1%, fully realizing gains from this rally. These disciplined buy-low, sell-high operations exemplify Guozhen Value 100’s commitment to the “value recovery” principle, locking in valuation gains into the index’s net asset value.

The long-term outperformance of Guozhen Value 100 fundamentally relies on the “pure value stock selection + balanced market cap risk control + quarterly rebalancing to seize opportunities” approach: avoiding style drift, steering clear of liquidity traps, and not missing valuation recovery dividends. Mastering this “hardcore rule set” enables investors to hold high-dividend stocks and benefit from valuation recoveries. This is the core reason why Value ETF E Fund (159263, linked A/C: 025497 / 025498) tracking Guozhen Value 100 consistently delivers superior long-term returns.