How Does the Guotai Science and Technology Chip ETF Select Stocks? Understanding the Index Compilation Rules in One Article

Investing in ETFs is essentially buying a set of automated stock selection programs. Guotai’s (589100) Sci-Tech Innovation Chip ETF tracks the “SSE Sci-Tech Innovation Board Chip Index (000685).” Its stock selection rules are actually a standardized guideline for investors to identify leading chip companies on the Sci-Tech Innovation Board. How is this index selected? Why does it represent the top chip leaders on the Sci-Tech Innovation Board? Today, this article will explain it clearly.

What is the SSE Sci-Tech Innovation Board Chip Index? As the name suggests, it is an index composed of listed companies related to chips selected from the Sci-Tech Innovation Board. Its positioning is very clear: focusing on the Sci-Tech Innovation Board and chips, making it one of the highest “chip purity” indices in the A-share market.

According to the index compilation rules, this index reflects the overall performance of securities of chip-related listed companies on the Sci-Tech Innovation Board. In other words, if you want to see the trend of chip stocks on the Sci-Tech Innovation Board, just look at this index.

The goal of Guotai’s (589100) Sci-Tech Innovation Chip ETF is to closely track this index, allowing investors to easily allocate to these leading chip companies on the Sci-Tech Innovation Board with a single purchase of an ETF.

However, not all Sci-Tech Innovation Board companies are eligible for this index. The index rules set three strict thresholds:

First, listing duration requirement. Companies must have been listed for more than 6 months. An exception is if the company’s average daily market capitalization since listing ranks in the top 5 of the Sci-Tech Innovation Board and has been listed for more than 3 months. This rule ensures companies have enough market testing time while not missing out on emerging leaders that perform well shortly after listing.

Second, exclusion of high-risk companies. Securities with delisting risk warnings, simply put, companies marked as ST cannot be included. This guarantees the basic quality of the index components.

Third, liquidity screening. Companies with an average daily trading volume in the top 90% over the past year are included. This rule filters out illiquid stocks, ensuring the index components have good liquidity, which reduces tracking costs for the ETF.

These three screening mechanisms mean that the securities held by the Guotai (589100) Sci-Tech Innovation Chip ETF are not only compliant but also active and market-tradable, effectively reducing impact costs during ETF operations and keeping tracking errors minimal.

Once the candidate pool is established, the next step is “who to include and who to exclude.”

The index rules are clear: from the candidate pool, select listed companies involved in semiconductor materials and equipment, chip design, manufacturing, packaging, and testing as the potential samples. Simply put, if you are engaged in chip-related business, you are eligible.

This means the index covers the entire semiconductor industry chain, making the Guotai (589100) Sci-Tech Innovation Chip ETF a highly pure chip investment tool in the A-share market. It does not include other industries, only focusing on the core business of the Sci-Tech Innovation Board. According to the Q4 2025 report, the top five holdings cover design, manufacturing, and equipment across the full industry chain, which naturally reflects this rule.

Among eligible chip stocks, the index ranks them by their average daily market value over the past year from highest to lowest. When the number of potential samples is less than 50, all are included; when it exceeds 50, the top 50 securities are selected as index components.

This explains why leading stocks like SMIC, Hygon Information, and Cambrian are included—they have large market caps and strong representativeness, naturally ranking at the top.

The index is not static. It is adjusted quarterly to ensure it always reflects the latest market landscape.

Specifically, the sample adjustment occurs on the second Friday of March, June, September, and December, with the next trading day. Each adjustment generally involves no more than 10% of the samples, balancing timeliness with trading costs. There are also special cases for temporary adjustments, such as removing delisted stocks from the index.

For the Guotai (589100) Sci-Tech Innovation Chip ETF, this means the fund manager will adjust holdings accordingly to keep pace with the index. According to quarterly reports, the tracking error has been kept within a reasonable range since inception, achieving the goal of “closely tracking the underlying index.”

Looking back at the entire compilation logic, you can see that the SSE Sci-Tech Innovation Board Chip Index (000685) contains the most pure, largest, and most representative chip companies on the Sci-Tech Innovation Board. That’s why the Guotai (589100) ETF tracks a “pure-blood” chip index—it excludes other industries, focusing solely on chips, Sci-Tech Innovation Board, and leading companies. Once you understand the index construction, you’ll realize that investing in ETFs is not about betting on individual stock movements but about trusting the long-term validity of a set of rules. The value of the Guotai (589100) Sci-Tech Innovation Chip ETF lies precisely in this.