FAIR WEALTH INVESTMENT

Fair wealth investment concept

      As a concept, fair wealth investment uses the performance of enterprises based on fair wealth evaluation system as an important reference for investment.

Significance of fair wealth investment
Achieve higher investment returns for investors

For two reasons, higher return on investment is earned through fair wealth investment

  • Fair wealth investment enterprises have lower investment risks (including laws and regulations, environment, resources, etc.)
  • Fair wealth investment enterprises have higher development potential
Investments are better aligned with individual values (fair)

Through fair wealth investment, investments are better aligned with investors’ values, bringing spiritual fulfillment in addition to investment returns.

Investment creates more equitable social benefits and values, promoting fair development of society

Guided by fair wealth investment, well-performed enterprises are readily available for investment, thereby encouraging other enterprises to pay attention to the fair wealth, and ultimately stimulating the development throughout society.

Specific forms of fair wealth investment

There are a total of four specific investment forms based on fair wealth: (1) taking fair wealth results as an investment reference factor, (2) using fair wealth results as a mandatory investment criterion, (3) investing according to fair wealth results, and (4) investing with the fair wealth index.

Investment reference factor

Investors factor into the fair wealth evaluation data among other reference factors when investing. For example:

They may refer to the star performance of the enterprise when investing.

They may consult specific manifestations of one or several dimensions and aspects of the enterprise in combination with the characteristics of industries.

Mandatory investment standard

Fair wealth evaluation data will be used as a mandatory screening criterion. Companies that do not meet such criteria will not be included in the scope of investment objects. For example:

There will be an absolute score criteria of aspects/dimensions/total points: enterprises with a score lower than that will not be considered for investment.

The relative pass criteria of aspects/dimensions/total points, i.e. they will only invest in the top few percent of enterprises.

Evaluation results investment

Investment objects are contained only in companies that are eligible for fair wealth evaluation, and invested in on that basis. Such as:

Select certain star/industry to invest in within the results-based range.

Follow their own investment strategies in star enterprises for optimization.

Index Investing

Investors make exponential investments based entirely on the fair wealth index.

Fair Wealth Index

       ping that investors and society will devote attention to and invest in these enterprises with good performance in fair wealth. Through the fair wealth index, the financial market will shift its attention to enterprises that meet the fair wealth evaluation criteria, promoting fair development. Meanwhile, the fair wealth index can also raise public awareness of fair wealth and guide enterprises to become involved in the process of fair wealth evaluation. Thye may be encouraged to regulate their own operations and reorient themselves toward the concept of fair wealth. In this section, we will introduce in detail how to compile the fair wealth index.

  1. Index base date and base point

       The indices are based on May 1, 2017, the theoretical completion date of the fair wealth evaluation, and are based on 1000 points.

 2. Sample selection method
    2.1. Sample space

       Shanghai and Shenzhen main board and small and medium-sized enterprises board listed companies.

    2.2. Sampling methods

       The stocks in the sample were rated according to fair wealth performance in the most recent year, and all honorary star enterprises were selected as index samples.

 3. Index periodic audit

       The fair wealth index is , in principle, reviewed once a year, and the sample stocks of the index will be adjusted based on the audit results.

    3.1. Audit time

       In March of each year, the fair wealth project team will review the fair wealth index sample stocks, which are adjusted on the first trading day of May each year.

    3.2. Audit reference basis

       When reviewing sample stocks in March every year, the major reference basis is the fair wealth performance of the previous year.

 4. Index calculation
    4.1. Grading

       In a bid to mirror stock price changes of real liquid stocks in the market, the fair wealth index filters out non-tradable shares in the share capital of the listed companies as well as the basic non-circulating shares caused by strategic shareholding or other reasons. The remaining share capital is called free tradable share capital, i.e. Free Float.

       When calculating the fair wealth index, the method of grading is adopted to ensure that the calculated share capital of the index remains relatively stable. In other words, give A-shares a certain weighted proportion of the total share capital based on the proportion of Free Float in the total share capital of A-shares (i.e. Free Float ratio), to ensure that the calculated share capital of the index remains relatively stable.

       The weighted scale of the grading method is determined according to the table below:

Free Float ratio (%) ≤15 (15， 20] (20， 30] (30， 40] (40， 50] (50， 60] (60， 70] (70， 80] >80
Weighted proportion (%) To the most Adjacent integer value 20 30 40 50 60 70 80 100

       Free Float ratio= the quantity of shares available for public trading/ total share capital of A shares

       Adjusted capital stock= total share capital of A shares×weighted proportion

    4.2. Index calculation

       The fair wealth index is measured in "points" to the second decimal

       Reporting period index= (The adjusted market value of the sample stocks during the reporting period/ divisor) *1000

       Where, the adjusted market value＝ ∑(share prices×adjusted capital stock)

    4.3. Index correction

       For the continuity of the index, when the sample stock list or the share capital structure of the sample stock changes, or the market value of the sample stock changes due to non-trading factors, fair wealth index adopts the "divisor correction method" to correct the original divisor according to the maintenance criteria of the sample stock share capital.

Modifier formulas

       Adjusted market value before correction/ Original divisor= Revised adjusted market value/ New divisor

       Where: Revised adjusted market value = adjusted market value before correction + newly added (reduced) and adjusted market value. From this formula, the new divisor is obtained and the future exponential can be calculated accordingly.

    4.4. Situations that need to be corrected

       1) Between two evaluations, the fair wealth evaluation adjusts the eligibility of the sample enterprises.

       2) Corporate events such as stock dividend, rationed shares, or other further issues that may affect stock price changes or cause stock capital changes in the sample enterprises.

Fair Wealth Index Applications

     

      The graph shows the performance of securities over 610 days between May 2, 2017 and October 31, 2019, during which:

 

Line Index Price Limit
Blue line Fair Wealth Index 18.46%
Orange Line CSI 300 index 13%
     
 

 

 

As can be seen in the figure above, during the entire statistical period, the fair wealth index was still higher than the CSI 300 index, and there was basically no crossover or overlap. Compared with the CSI 300 index, the fair wealth index is more stable, which proves that enterprises investing in line with the concept of fair wealth can better hedge the risk for investors and improve investment returns.

Fair Wealth Index Applications

     Currently, the main applications of the fair wealth index include the following: