Beware of High-Position "Keeping Watch" – Over 10 QDII Funds Issue Premium Risk Warnings on the Same Day

Source: 21st Century Business Herald Author: Yi Yanjun

Amid increasing volatility in the international financial markets, some cross-border ETFs and LOFs are attracting capital, causing a sharp rise in premium risks.

On March 19 alone, more than 10 QDII funds, including E Fund Oil LOF, China-Korea Semiconductor ETF Huatai Bairui, Nasdaq Technology ETF Invesco Great Wall, and Hu’an Nikkei 225 ETF, issued notices reminding investors to pay close attention to the premium risk of secondary market trading prices and to make cautious investment decisions.

Meanwhile, reporters from 21st Century Business Herald have observed an increase in cases where single QDII funds frequently warn about premium risks. Since early March, multiple cross-border ETFs and LOFs have issued over ten related warning notices. During this period, some funds have also taken measures such as temporary intraday suspensions to curb excessively high premium rates.

Sources suggest that current QDII investments should focus on the intra-market premium rate, avoid chasing high premiums, and prevent losses caused by a decline in premiums. Priority should be given to products with good liquidity and small tracking errors, maintaining long-term allocations rather than short-term speculation, and rationally viewing fluctuations in overseas assets.

Multiple factors contribute to high premiums

Generally, when the trading price of an ETF or LOF in the secondary market exceeds its IOPV (fund share net asset value), a premium is formed. This means the market price is higher than the actual value of the fund.

On the early morning of March 19, E Fund announced that the recent secondary market trading price of its Oil LOF (QDII) was significantly higher than its net asset value. As of March 16, 2026, the fund’s net asset value per share was 1.6414 yuan, while by March 18, 2026, the closing price in the secondary market was 1.896 yuan.

In other words, as of March 18, this cross-border LOF’s premium rate was about 15%.

“E Fund hereby solemnly reminds investors to pay close attention to the premium risk of secondary market trading prices and to make cautious investment decisions. Blindly buying at high premiums that deviate significantly from the actual value of the assets may lead to substantial losses when the secondary market price falls back,” the fund said.

This is the 13th notice issued by E Fund since March warning about the premium risk of Oil LOF E Fund. During this period, the fund has also taken multiple measures such as temporary intraday suspensions.

At the same time, Invesco Great Wall Fund has issued over 20 notices warning about premium risks for its global chip LOF.

In fact, “frequent risk warnings but persistent high fund premiums” is not an isolated case; many cross-border ETFs are caught in this cycle.

For example, since March, notices warning about premium risks have repeatedly appeared for products such as China-Korea Semiconductor ETF Huatai Bairui, Huaxia Nikkei ETF, Wanguo S&P Oil & Gas ETF, S&P 500 ETF Southern, and Hu’an France CAC40 ETF.

Regarding the reasons for persistently high premiums in these QDII funds, Sun Heng, Director of the China Fund Research Center at Morningstar, pointed out that the core is the concentrated demand for popular overseas assets (oil & gas, US stocks, semiconductors, etc.), combined with the exhaustion of QDII foreign exchange quotas by fund companies and the general suspension or quota restrictions on off-market subscriptions, leading to the failure of arbitrage channels of “off-market subscriptions and on-market sales,” forcing on-market funds to scramble for existing shares, which severely distorts supply and demand and pushes up trading prices.

Additionally, “misaligned trading hours across cross-border markets and long redemption cycles further amplify price deviations, ultimately resulting in sustained high premiums,” Sun said.

The “purchase restrictions” on QDII funds have indeed become a norm.

Wind data shows that over 60% of QDII products are currently suspended from subscription or large-scale subscription. As mentioned earlier, funds like E Fund Oil LOF and China-Korea Semiconductor ETF Huatai Bairui have previously suspended subscriptions.

A fund company insider told reporters that when foreign exchange quotas are tight, if fund companies do not restrict large subscriptions, some funds may remain idle due to inability to invest abroad, which can dilute returns. Conversely, reducing positions may also weaken investment performance. Therefore, restrictions or suspensions are mainly to protect investors’ interests.

Be cautious of high premium risks

It is important to note that blindly investing in high-premium ETFs can lead to significant losses.

Huatai Bairui Fund pointed out that buying at a high premium is essentially “paying for market sentiment.”

The company explained that high premiums are caused by the secondary market trading price diverging from the IOPV (fund share net asset value), driven by short-term factors such as market sentiment and capital chasing, rather than intrinsic product value. Arbitrage mechanisms will gradually correct excessive premiums and discounts, and even if temporarily hindered by quota restrictions, once quotas are released or sentiment cools, high premium levels are likely to quickly normalize.

When prices revert to their intrinsic value, even if the index tracked by the ETF remains unchanged, investors who bought at high premiums will incur losses as premiums decline.

For example, if an ETF is bought at a 50% premium at 15 yuan, when the premium returns to zero, even if the IOPV remains unchanged, the secondary market price could fall from 15 yuan to 10 yuan, resulting in a 33% loss for the investor.

Moreover, high-premium ETFs may also face liquidity risks, as some ETFs’ trading activity is driven by short-term speculative capital.

“Once the market realizes that the secondary market price is too high or the underlying assets change, the previously enthusiastic capital may sell off collectively, causing prices to plummet and trading activity to sharply decline, leading to liquidity issues,” Huatai Bairui Fund warned. In such cases, investors may face large bid-ask spreads or even difficulty in selling their holdings. Panic-driven withdrawals could also trigger the ETF’s secondary market price limit down.

Besides avoiding products with high premiums, investors should consider multiple factors when investing in QDII funds in the current environment.

Sun Heng advised that investors should focus on the intra-market premium rate, avoid chasing high premiums, and prevent losses from premium declines; also, they should pay attention to foreign exchange quotas, subscription and redemption rules, understand cross-border market time differences, exchange rate fluctuations, and overseas market risks. Prioritize products with good liquidity and small tracking errors, maintain long-term allocations rather than short-term speculation, and view overseas asset fluctuations rationally.

Additionally, Huatai Bairui Fund reminded that a long-term low premium rate often indicates good ETF liquidity. Liquid ETFs allow investors to buy or sell close to their intrinsic value.

On the other hand, to curb high premium risks in QDII funds, multiple efforts are needed.

According to Sun Heng, this involves regulatory authorities reasonably increasing QDII foreign exchange quotas, optimizing quota allocation efficiency, and facilitating arbitrage mechanisms; fund companies should promptly disclose premiums, implement restrictions or suspensions, and guide rational trading; investor education should be strengthened to highlight the risks of price deviations from net asset value, reducing blind chasing of high prices. Improving cross-border trading and redemption efficiency, and multiple measures to suppress premiums are also essential.