Beware of high-level "standing guard" Over 10 QDII funds issue warnings about premium risk 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-PineBridge, Nasdaq Technology ETF Invesco Great Wall, and Hu’an Nikkei 225 ETF, issued notices reminding investors to pay close attention to the premium risks in the secondary market trading prices of related products and to make cautious investment decisions.

Meanwhile, the 21st Century Business Herald reporter has 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 the persistently high premium rates.

Interviewees suggest that current QDII fund 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 (Indicative Net Asset Value), a premium is formed. This means the fund’s secondary market price is higher than its actual value.

On the early morning of March 19, E Fund announced that the recent trading price of its Oil LOF (QDII) in the secondary market was significantly higher than its net asset value. As of March 16, 2026, the fund’s NAV was 1.6414 yuan, and 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 in the secondary market trading prices and to make cautious investment decisions. Blindly buying at a high premium that deviates significantly from the actual value of the assets may lead to substantial losses when the secondary market price falls back,” said E Fund.

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” are not isolated cases; many cross-border ETFs are caught in this cycle.

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

Regarding the reasons for the persistently high premiums of these QDII funds, Sun Heng, Director of the Morningstar (China) Fund Research Center, 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, “misalignment of cross-border market trading hours and long redemption cycles further amplify price deviations, ultimately resulting in sustained high premiums,” Sun said.

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 E Fund Oil LOF and China-Korea Semiconductor ETF Huatai-PineBridge 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 investment returns. 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 may lead to significant losses.

Huatai-PineBridge Fund pointed out that buying at a high premium is equivalent to “paying for market sentiment.”

The company explained that high premiums essentially mean the secondary market trading price has diverged 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 restrictions, once quotas are released or sentiment cools, high premium levels are likely to quickly normalize.

When prices revert to 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 will 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 entering funds may sell off collectively, causing prices to plummet, trading activity to sharply decline, and liquidity to deteriorate rapidly,” Huatai-PineBridge Fund warned. At that point, investors may face large bid-ask spreads or even “inability to sell” issues. 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 intra-market premium rate, avoid chasing high premiums, and prevent losses from premium declines; 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-PineBridge Fund reminds 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, to curb high premium risks in QDII funds, multiple efforts are needed.

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; investor education should be strengthened to highlight the risks of price deviations from NAV, reducing blind chasing, and improving cross-border trading and redemption efficiency to help stabilize premiums across multiple dimensions.