From sample to live trading: Why can the China Securities Value 100 withstand the test of time?

Recently, market attention on the China Securities Value 100 Index has been heating up continuously, along with a concern: since the index was revised in October 2024, its out-of-sample track record isn’t very long, and there’s a question whether its past excellent performance is just overfitting to historical data.

To answer this question, we first need to clarify the essence of “overfitting” in investment, and the three core standards to judge whether an index is overfitted. In simple terms, overfitting is like driving while only looking in the rearview mirror—setting parameters without underlying logic to deliberately fit past market conditions in order to make backtested performance look perfect, but ultimately causing the backtest to perform well while the live trading fails completely. Its core essence is that the logic is non-reproducible, rules are deliberately adapted to historical data, and there is a fundamental divergence between in-sample and out-of-sample performance.

Based on this analysis of the essence, we will evaluate whether the China Securities Value 100 Index is overfitted by focusing on three key criteria: whether the out-of-sample performance is consistent with the in-sample return characteristics; whether the index construction scheme has a clear underlying logic; and whether the core selection factors are universally applicable and can be validated for long-term effectiveness across different cycles and markets.

Next, we will verify these dimensions one by one using straightforward logic and real data.

Dimension 1: Consistency of out-of-sample and in-sample return characteristics, with stable long-term performance and no style drift

The primary standard for judging overfitting is whether the index’s out-of-sample performance in live trading continues the core return and risk features observed in the in-sample period, rather than experiencing a cliff-like decline where “backtest shines, live trading fails.”

Since its revision in November 2024, the China Securities Value 100 Index’s out-of-sample live performance has continued the core return characteristics: whether it is the stable excess returns relative to the CSI 300 and CSI Dividend indices, or the product attributes of low valuation and high dividend yield, all are consistent with the logic during the backtest phase, with no signs of overfitting.

Specifically, since the index revision on November 1, 2024, over nearly 17 months, the annualized return has been 21.6%, with a Sharpe ratio of 1.77, even surpassing its in-sample performance: since the base date, the annualized return of the Value 100 is 18.0%, with a Sharpe ratio of 0.86. From a relative return perspective, the Value 100 still maintains a high level, with an out-of-sample excess of 11.4% over the CSI Dividend, exceeding the historical average of 6.8%.

China Securities Value 100 Index out-of-sample performance is excellent

Data source: Wind, as of March 27, 2026

From the core attributes of the index, as of March 27, 2026, the Price-to-Earnings ratio of the China Securities Value 100 is 11.27 times, relatively low compared to similar indices; the dividend yield is 5.0%, higher than the CSI Dividend’s 4.7% and the China Securities Free Cash Flow Index’s 3.3%. This “low valuation + high dividend” combination means investors can obtain higher dividend returns at relatively low prices, aligning with the core value philosophy of the China Securities Value 100 Index, without significant style shifts.

Index dividend yield comparison

Data source: Wind, as of March 27, 2026

Dimension 2: The underlying logic of the construction scheme is clear, reducing overfitting risk from the source

The second standard for judging overfitting is whether the index’s construction rules have an explainable underlying logic, rather than being overly optimized parameters designed solely to fit historical market conditions. The China Securities Value 100 Index, in its design, reduces overfitting risk through multiple mechanisms from the ground up.

The core selection logic of the China Securities Value 100 revolves around three value factors: “low valuation, high dividend yield, high free cash flow,” combined with quality screening for earnings stability. Essentially, it adheres to value investing principles—buying high-quality companies with reasonable, low valuations that can generate real cash flow and are willing to share profits with shareholders. This logic is not tailored to fit historical data but has been validated across global capital markets, with a universal applicability across cycles and markets.

Additionally, the index’s selection rules are simple and transparent: first, exclude stocks with poor liquidity, large earnings volatility, or flawed fundamentals; then, calculate value scores based on the inverse of P/E ratio, dividend yield, and free cash flow yield; finally, select the top 100 stocks by score as constituents, weighted by value factors and market cap. The entire process involves no complex, logic-lacking operations, making it explainable and reproducible.

Many seemingly high-performing indices are essentially betting on a single industry or a few stocks, aligning with certain historical market conditions to generate excess returns—this is a typical overfitting risk. When market styles shift, their performance often drops sharply. The China Securities Value 100 index maintains a relatively balanced industry and stock distribution, covering core sectors such as appliances, banking, oil and petrochemicals, and automobiles, avoiding over-concentration in a single sector. This diversified and balanced structure reduces the risk of overfitting to a single industry’s historical performance and ensures more stable and balanced index performance.

China Securities Value 100 industry distribution

Data source: Wind, as of March 16, 2026

Furthermore, the index employs quarterly rebalancing, recalculating stock scores based on the latest financial data and market prices each quarter, adjusting constituents and weights accordingly. The core logic of this mechanism is to promptly remove stocks whose valuations have risen after price increases, dividend yields have been diluted, or value has declined, while adding new high-value stocks that meet the “low valuation, high dividend yield, high free cash flow” criteria. Although more frequent than annual rebalancing, this disciplined “buy low, sell high” approach allows the high dividend and low valuation attributes of the China Securities Value 100 to persist, preventing valuation increases from deviating the index from its core value.

Dimension 3: The core factors have universal validity across cycles and markets, not just historical coincidence

The third key standard for judging overfitting is whether the index’s core return drivers—its stock selection factors—are universally applicable and can be validated for long-term effectiveness across different time periods and market environments. If the core factors can withstand long-term, cross-market testing, the likelihood of overfitting diminishes.

The three core factors used in the China Securities Value 100 have been validated not only in the Chinese A-share market over more than ten years but also in mature markets like the U.S. stock market through long-term testing.

High dividend factor: As of March 27, 2026, the CSI Dividend Index has achieved a cumulative return of 139.5% over the past 10 years, compared to 77.8% for the CSI 300 during the same period. The dividend yield factor can continue to generate long-term outperformance over broad indices.

Free cash flow factor: Free cash flow is the real cash that companies can freely allocate in operations. Over the long term, companies with high free cash flow are more resilient and have higher earnings quality. The China Securities Free Cash Flow Index has also achieved a cumulative return over the past 10 years that outperforms the CSI 300. In the U.S., the Pacer US Cash Cows 100 Index, which selects stocks with high free cash flow from the Russell 1000, has an annualized return of 15.89% as of December 31, 2025, exceeding the Russell 1000’s 10.74%.

Low valuation factor: The cost-effectiveness brought by low valuation is central to value investing—buying stocks with high dividends and high free cash flow at reasonable, low prices reduces downside risk and allows for long-term gains from valuation recovery.

In investment, simpler, logically sound strategies tend to be more effective. The Value 100 Index embodies this philosophy: its construction rules are anchored in the fundamental logic of value investing—simple, transparent, explainable, and reproducible; its out-of-sample performance continues the in-sample return and risk features, even showing stronger excess return potential; and its core factors have been validated in both the Chinese market over ten years and in mature markets like the U.S., demonstrating universal applicability.

If you want to invest in this index with a single click, you can also consider tracking its Value ETF, E Fund (159263, linking A/C: 025497 / 025498).