Quick summary: What are the differences among the three major free cash flow indices?

What is Free Cash Flow?

Free cash flow measures the cash a company can freely allocate, meaning the funds the company can use flexibly, reflecting the company’s true profitability quality.

To give a simple analogy, you open a supermarket, and in a year, you actually recover 1 million yuan in cash from your business. To maintain and upgrade operations, you spend 300k yuan on renovating the store and replacing shelves. The remaining 700k yuan is free cash flow, which you can use for dividends, expanding the store, or saving, with complete freedom of use.

Companies with high free cash flow often have the following characteristics:

1. Stable shareholder returns, capable of paying dividends or stock buybacks

2. Healthy finances, manageable debt, strong risk resistance

3. Mature business models, deep “moats,” and steady operations

What are the differences among the three major free cash flow indices?

Currently, the well-known free cash flow strategy indices in the market are the Guozhen Free Cash Flow Index, CSI All Share Free Cash Flow Index, and FTSE China A-Share Free Cash Flow Focus Index.

Guozhen Free Cash Flow Index: First, it excludes securities with an average daily trading volume ranking in the bottom 20% over the past six months, and excludes securities in financial or real estate industries with unusual cash flow patterns. Second, it requires companies to have positive cash flow from operating activities for three consecutive years, introducing dual screening based on “ROE stability” and “cash flow/profit ratio.” Finally, it sorts stocks by free cash flow rate from high to low and selects the top 100 stocks as constituents.

CSI All Share Free Cash Flow Index: Also excludes financial or real estate industries, requires five consecutive years of positive net cash flow from operating activities, indicating high profit quality. It then selects the top 100 stocks sorted by free cash flow rate from high to low as constituents.

FTSE China A-Share Free Cash Flow Focus Index: Similarly excludes financial or real estate industries, requires positive free cash flow in the past year, and uses quality factors to select 50 high cash flow companies.

Main differences among the three:

1. Duration of positive cash flow:

FTSE requires positive free cash flow in the past year, Guozhen requires positive cash flow from operating activities over the past three years, and CSI requires five consecutive years of positive cash flow, with longer durations.

2. Number and concentration of constituents:

Guozhen and CSI both have 100 stocks, while FTSE only has 50, meaning the impact of heavy holdings is greater. This also explains why the top ten constituents in FTSE account for over 60%, while the other two are around 50%.

Comparison of the top ten constituents of the indices:

Data source: Wind, as of March 26, 2026

3. Different negative screening dimensions:

FTSE Free Cash Flow Index focuses on volatility (excluding the bottom 30% of securities with low volatility); Guozhen Free Cash Flow Index emphasizes profit stability and cash conversion ability (excluding securities ranked in the bottom 10% for ROE stability over the past 12 quarters and the bottom 30% for cash flow/operating profit); CSI All Share Free Cash Flow Index has no tail exclusion, focusing on the duration of continuous profitability.

4. Top five overweight industries:

The top five industries include automobiles, non-ferrous metals, household appliances, but with different weights. Guozhen heavily weights automobiles, oil and petrochemicals, non-ferrous metals, and power equipment, leaning toward high-end manufacturing and consumption recovery logic, potentially more cyclical during economic recovery; FTSE heavily weights household appliances, which are post-real estate cycle; CSI’s top five industries are relatively balanced, with transportation included, diversifying the risk of concentration in a single industry.

Note: Data source: Wind, Shenwan Level 1 industries, as of March 26, 2026

Investment logic of free cash flow indices: suitable as “core holdings”

Compared to superficial accounting profits, free cash flow is more “solid.”

Companies that can continuously generate free cash flow often have deep moats and are high-quality assets capable of crossing cycles. When investing, you can use free cash flow index products as the “ballast” of your portfolio, aiming for long-term steady returns.

Currently, among 25 funds tracking the Guozhen Free Cash Flow Index, the E Fund Free Cash Flow ETF (159222) has lower management fees (0.15%) and custodial fees (0.05%), making it a cost-effective core holding. Holding it long-term can save significant costs. For example, compared to similar products with an annual fee rate of 0.6% (management fee 0.50%, custodial fee 0.10%), with a 1 million yuan position, over five years, you could save about 20k yuan; over ten years, about 40k yuan. With compound interest, the long-term savings become even more substantial.

Risk reminder: Funds are risky; please invest cautiously.