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

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 ten 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 in secondary market trading prices and to make cautious investment decisions.

At the same time, a reporter from 21st Century Business Herald noticed that cases of frequent premium risk warnings for individual QDII funds are also increasing. 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 the persistently high premium rates.

Experts suggest that current QDII investments should focus on the on-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 (Indicative 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 trading price of its Oil LOF (QDII) significantly exceeded its net asset value. As of March 16, 2026, the fund’s NAV was 1.6414 yuan, while by March 18, 2026, its secondary market closing price was 1.896 yuan.

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

E Fund emphasized, “We hereby remind investors to pay close attention to the premium risk in secondary market trading prices and to make cautious investment decisions. Blindly buying at high premiums that deviate significantly from the actual value may lead to substantial losses when the premium declines.”

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.

Meanwhile, Invesco Great Wall Fund issued over 20 notices warning about premium risks for its Global Chip LOF.

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

For example, since March, notices 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 behind the persistently high premiums of these QDII funds, Sun Heng, Director of the China Fund Research Center at Morningstar, pointed out that the core issue 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. This results in the arbitrage channel of “off-market subscriptions and on-market sales” becoming ineffective, forcing on-market funds to scramble for existing shares, which severely distorts supply and demand and pushes up trading prices.

Additionally, “dislocation of trading hours in cross-border markets and long redemption cycles further amplify price deviations, ultimately leading to sustained high premiums,” Sun Heng explained.

Indeed, “purchase restrictions” on QDII funds have 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 Oil LOF E Fund 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 be unable to invest abroad and remain idle, while reducing positions would dilute returns. Therefore, restrictions or suspensions are mainly to protect investors’ interests.

Beware 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 (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 limits, once quotas are released or sentiment cools, high premiums 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 drops to zero, the trading price may fall from 15 yuan to 10 yuan if the NAV remains unchanged, resulting in a 33% loss.

High-premium ETFs may also face liquidity risks, as their trading activity is often driven by short-term speculation.

“Once the market realizes that the secondary market price is too high or the underlying assets change, the influx of capital may suddenly sell off, causing prices to plummet and trading activity to sharply decline, with liquidity deteriorating rapidly,” Huatai Bairui Fund warned. In such cases, investors may face large bid-ask spreads or even be unable to sell their shares. Panic-driven withdrawals could also trigger the ETF’s secondary market price limit down.

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

Sun Heng advised that investors should focus on the on-market premium rate, avoid chasing high premiums, and be cautious of falling premiums that could lead to losses. They should also pay attention to foreign exchange quotas, purchase and redemption rules, and 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 liquidity. Liquid ETFs allow investors to buy or sell close to their actual value.

On the other hand, reducing high premium risks in QDII funds requires efforts from multiple sides.

According to Sun Heng, this involves regulators 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; and investor education should be strengthened to highlight the risks of price deviations from NAV, reducing blind chasing. Improving cross-border trading and redemption efficiency, along with multi-dimensional efforts, can help stabilize premiums.

(Author: Yi Yanjun; Editor: Bao Fangming)