Free cash flow is "hot" — March strategy index ETFs attract over 19 billion yuan against the trend

As volatility in the equity markets increases, funds with defensive attributes have become the “new favorites” for investors.

According to Wind statistics, from March 2 to March 25, stock ETFs experienced overall net outflows, but strategy index ETFs saw a contrary net inflow of over 19.2 billion yuan. Among them, the free cash flow ETF and the dividend ETF were the main contributors, with net inflows of 10.487 billion yuan and 8.531 billion yuan, respectively.

Interviewees pointed out to the 21st Century Business Herald that the increased attractiveness of the free cash flow index and the dividend index may reflect, to some extent, the market’s emphasis on income certainty and downside risk management at specific stages.

Some institutions suggest that the most reasonable asset allocation structure for 2026 is “barbell-shaped”: one end should allocate high-quality free cash flow assets as the ballast of the portfolio, providing low volatility, stable returns, and risk resistance; the other end should focus on high-elasticity technology growth sectors to capture structural opportunities.

Free cash flow ETFs attract significant capital

Wind data shows that on March 23, as the A-share market underwent severe adjustments, nearly 16.54 billion yuan flowed into stock ETFs, with broad-based products such as the CSI 300 ETF, Shanghai Composite Index ETF, SSE 50 ETF, and CSI 1000 ETF being the main attractors; on March 24, major A-share indices collectively rebounded, and the pace of inflows into broad-based ETFs slowed.

On March 25, stock ETFs turned to net outflows, but among them, strategy index ETFs still attracted 1.89 billion yuan.

Looking at a longer time frame, the trend of capital inflowing into strategy index ETFs is even more pronounced.

According to Wind statistics, from March 2 to March 25, stock ETFs experienced a total net outflow of over 20.9 billion yuan. Among these, strategy index ETFs, industry index ETFs, thematic index ETFs, and style index ETFs all saw net inflows, while scale index ETFs (broad-based) experienced net outflows.

Specifically, as of March 25, the largest net inflow since March was seen in strategy index ETFs, totaling 19.208 billion yuan. Among them, the free cash flow ETF and dividend-related ETFs were the most favored by capital.

From March 2 to March 25, the free cash flow ETF and dividend ETF had net inflows of 10.487 billion yuan and 8.531 billion yuan, respectively.

In terms of individual products, since March, the ten strategy index ETFs with the largest capital inflows are: Huaxia Free Cash Flow ETF, Bosera Dividend Low Volatility 100 ETF, Huatai-PB All-Index Cash Flow ETF, E Fund Dividend Low Volatility ETF, Huatai-PB Dividend Low Volatility ETF, Harvest 300 Dividend Low Volatility ETF, Hua Bao S&P A-Share Dividend ETF, Southern Free Cash Flow ETF, China Merchants Dividend ETF, and E Fund Dividend ETF.

The net inflow amounts for these ten ETFs are: 3.991 billion yuan, 1.687 billion yuan, 1.256 billion yuan, 1.254 billion yuan, 1.156 billion yuan, 1.156 billion yuan, 1.001 billion yuan, 894 million yuan, 878 million yuan, and 876 million yuan.

In terms of performance, since March, the unit net values of the aforementioned ten strategy index ETFs have varied. In terms of fund size, as of March 25, the sizes of Huatai-PB Dividend Low Volatility ETF, Huaxia Free Cash Flow ETF, and E Fund Dividend ETF are large, at 31.329 billion yuan, 18.079 billion yuan, and 12.147 billion yuan, respectively.

It is worth mentioning that the indices tracked by the ten ETFs cover the National Securities Free Cash Flow, China Securities Dividend Low Volatility 100, China Securities All-Index Free Cash Flow, China Securities Dividend Low Volatility, Shanghai and Shenzhen 300 Dividend Low Volatility, and China Securities Dividend indices.

Among them, the components of the National Securities Free Cash Flow Index are mainly distributed across industries such as automobiles, oil and petrochemicals, non-ferrous metals, power equipment, home appliances, steel, and basic chemicals. The components of the China Securities Dividend Low Volatility Index are mainly distributed across industries such as finance, industrials, materials, utilities, communication services, healthcare, and energy.

“From the characteristics of the indices, the compilation logic of the free cash flow-related indices focuses on the real cash generation ability of companies, rather than purely on accounting profits, which helps filter out companies with higher potential financial risks, and focuses more on companies with endogenous growth momentum and operational resilience,” said Cui Yue, an analyst at Morningstar (China) Fund Research Center.

Cui Yue analyzed that, generally speaking, stable and abundant cash flow is an important foundation for companies to maintain daily operations, respond to cyclical fluctuations, and implement dividends. Therefore, indices with such companies as component stocks often exhibit certain defensive attributes during phases of reduced market risk appetite. Similarly, dividend indices form a certain safety cushion with high dividends and low valuation characteristics, also possessing certain defensive attributes in a turbulent or declining market environment.

How to allocate?

In the current environment of high volatility in the equity market, capital shifts are more driven by safety considerations.

Cui Yue believes that the increased attractiveness of the free cash flow index and the dividend index may reflect, to some extent, the market’s emphasis on income certainty and downside risk management at specific stages.

However, it should be noted that “free cash flow and dividend indices will still be affected by the macroeconomic cycle, and may face liquidity tests under extreme market conditions. At the same time, although both possess certain defensive attributes, their strategic logic has significant differences. Investors should carefully analyze the compilation methods, component stock structures, and portfolio characteristics of different indices, and choose products that align with their asset allocation ideas, investment goals, and risk preferences,” Cui Yue stated.

On the other hand, apart from the indices, if considering the addition of the “free cash flow” factor in the investment process, two typical traps should be cautioned against.

Southern Fund recently analyzed in a live broadcast: First, excessive valuation; even with abundant cash flow, if a company’s valuation has already overdrawn future expectations, there is insufficient safety margin. Second, abnormal capital expenditure cuts, especially for technology companies; if they cut R&D expenses to beautify cash flow in the short term, it will harm long-term competitiveness. For example, in the AI era, if companies halt technological iterations to pursue current free cash flow, they will ultimately be eliminated by the market.

Therefore, a scientifically sound free cash flow strategy emphasizes the dual dimensions of “quality + sustainability,” avoiding the trap of “financial magic” and genuinely selecting companies that can continuously create value.

For the allocation strategy in 2026, Southern Fund suggests that in the context of economic fluctuations and technological innovation, the most reasonable asset allocation structure is “barbell-shaped”: one end should allocate high-quality free cash flow assets as the ballast of the portfolio, providing low volatility, stable returns, and risk resistance; the other end should focus on high-elasticity technology growth sectors to capture structural opportunities.

Free cash flow assets perform excellently during weak cycles and rising risk aversion, while the technology sector has high elasticity during recovery periods, with their return characteristics complementing each other naturally. The company mentioned that the essence of the free cash flow strategy is a long-term value investment tool, not a short-term speculative target. Investors should discard thematic speculation thinking, anchor to fundamentals, hold for the long term, and genuinely share in the dividends of companies that create real cash flow.

(Author: Yi Yanjun Editor: Bao Fangming)

(Editor: Wen Jing)

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                                                            ETF