Oil and gas themed funds experience a sharp pullback, but it doesn't prevent capital from flowing into QDII products.

（Source: Economic Information Daily）

Before the market opened on April 1, four funds, including the JIA SHI Oil Securities Investment Fund (QDII-LOF) and the E Fund Oil Securities Investment Fund (QDII), released announcements one after another to flag the risk of premium on secondary-market trading prices. According to reporter statistics from Tonghuashun iFinD data, the on-exchange price premium for oil and gas theme funds remains persistently high. During March, the whole market saw 10 oil and gas theme funds cumulatively issue 175 premium-risk-warning announcements.

Frequent premium-risk-warning announcements and temporary trading halt announcements, combined with violent international oil-price fluctuations, generally led to a sharp pullback for oil and gas theme funds traded on-exchange. However, the circulation units and scale of the fund products showed differentiation. iFinD data shows that among the nine oil and gas theme ETFs with more than one year since inception, 2 QDII equity funds continued to receive net inflows, while the circulation units and scale of the 7 passive index-based equity funds shrank significantly.

“Cooling off” the high on-exchange premiums

The high premiums of oil and gas theme funds are closely linked to recent upward trends in international oil prices. iFinD data shows that Brent crude’s front-month consecutive contract (BRN0Y) had a settlement price of only US$72.87 on February 27. Driven by the situation in the Middle East, during trading on March 9 it once came close to US$120, with a daily settlement price of US$98.96. Afterwards, prices continued to trade at high levels with volatility. On March 19, during trading it again approached US$120, with a daily settlement price of US$108.65.

Influenced by the surge in international oil prices caused by the situation in the Middle East, oil and gas theme funds saw a collective rally. When calculated separately by different share classes, across the whole market there are 55 oil and gas theme funds. Among them, 7 QDII commodity-type funds have all risen more than 60% since the beginning of the year and have also suspended subscriptions for now; 18 QDII equity-type funds have risen between 29.58% and 44.92% since the beginning of the year, and currently only 6 are open for subscription.

Under the “purchase limits” trend in the primary market, trading heat for oil and gas theme funds in the secondary market soared. With funds flowing in and international oil prices fluctuating, the premium levels of oil and gas theme funds continued to rise. Taking oil and gas theme ETF funds as an example, among nine fund products with more than one year since inception, only the Harvest Fund S&P Oil & Gas Exploration & Production Select Industry ETF (QDII) and the Jias i Fund S&P Oil & Gas Exploration & Production Select Industry ETF (QDII) showed high premiums.

Specifically, the premium rates of both the Harvest Fund S&P Oil & Gas Exploration & Production Select Industry ETF (QDII) and the Jias i Fund S&P Oil & Gas Exploration & Production Select Industry ETF (QDII) reached their peaks on March 24, at 28.75% and 19.98%, respectively. During March, they issued 43 and 15 premium-risk-warning announcements, respectively. By March 31, their premium rates had both fallen sharply to 12.26% and 12.52%, respectively.

Corresponding to the continuing “cooling off” of on-exchange premiums, the trading prices of the two funds above fell sharply on-exchange. Taking the Jias i Fund S&P Oil & Gas Exploration & Production Select Industry ETF (QDII) as an example, during intraday trading on March 24 the fund touched 1.560 yuan. By the close on March 31, it had dropped to 1.435 yuan. After the temporary trading halt and resumption in early trading on April 1, the trading price continued to trend downward, falling another 9.76% that day to 1.295 yuan.

Divergence in capital flows for oil and gas funds

Along with the premium rate continuing to decline and on-exchange trading prices seeing pullbacks, multiple oil and gas theme ETF funds experienced a surge followed by a decline in size, with significant shrinkage. Taking the FTSE/CSI CNOOC/ PetroChina Oil & Gas Resources ETF (Huizuo? as example: Franklin? Actually) as an example, the fund’s circulating units and scale were 604 million units and 923 million yuan as of February 27. They increased to the highest point on March 9—3.002 billion units and 5.067 billion yuan—respectively. By March 31, they had fallen to 1.175 billion units and 1.748 billion yuan, respectively.

However, funds still continued to flow into oil and gas theme QDII funds that trade on-exchange. The circulating units of the Harvest Fund S&P Oil & Gas Exploration & Production Select Industry ETF (QDII) and the Jias i Fund S&P Oil & Gas Exploration & Production Select Industry ETF (QDII) increased from 674 million units and 1.471 billion units as of February 27 to 777 million units and 1.701 billion units as of March 30, respectively. During the period, their circulating scale rose by 318 million yuan and 620 million yuan, respectively. Both circulating unit and scale hit new highs.

“This round of a significant rise in international oil prices came with intense volatility, mainly due to the combined impact of multiple factors such as global crude oil supply-demand relationships and geopolitical developments.” A person from a fund company in South China told the reporter. Because the primary market’s oil and gas theme QDII funds are subject to large-scale purchase limits, investors can only turn to on-exchange trading to snap up shares, and the resulting supply-demand imbalance pushed up the premium level of on-exchange-traded oil and gas theme QDII funds.

The above person pointed out that the rise and fall of oil and gas theme funds is tightly linked to international oil prices. Excessively high premiums pay in advance for future potential gains. Some oil and gas theme funds that were previously heavily hyped are still trading at high premium levels. For investors who are still observing and planning oil and gas theme funds, they should remain vigilant and avoid chasing the price. If expectations fail to materialize or market sentiment cools, investors may face a situation where oil prices do not fall but the fund price drops sharply.

Regarding the future trend of international oil prices, Galaxy Futures reminded that escalation and cooling cycles in the Middle East conflict cause a “whip effect” in the market, and international oil prices will remain volatile at high levels. Shenwan Hongyuan Futures Research Institute analyzed that, affected by the “cooling” signals in the current Middle East situation, international oil prices once surged and then retreated, and the market risk premium subsequently gave back. However, if in the coming weeks there is no substantive progress on negotiations or if the conflict unexpectedly escalates, oil prices still face the risk of a second surge.

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