Cross-border semiconductor ETF premium rate exceeds 20%; fund companies repeatedly warn about the risks of chasing highs

Author: Peng Yansong

Since the beginning of this year, benefiting from the continuous rise in the global semiconductor industry cycle, investment funds in the Korean market under the Qualified Domestic Institutional Investor (QDII) scheme have performed remarkably.

Wind data shows that as of May 11, the China-Korea Semiconductor ETF managed by Huatai-PineBridge has achieved a year-to-date net value increase of 73.63% (ranking first in the QDII market), with the latest net value of 5.634 yuan. Its scale has rapidly expanded from 3.67B yuan at the start of the year to 9.68 billion yuan, with a net inflow of 2.79B yuan this year. However, alongside its impressive performance, the secondary market premium rate of this fund has soared to 20.41%, far above the market average of 1.17% for all QDII funds. Performance and risk coexist, reflecting the current high enthusiasm and potential hidden concerns in the cross-border semiconductor investment field.

Performance Explosion Coupled with Premium Risks

The core driver behind the strength of this round of China-Korea semiconductor-themed funds is the cyclical recovery of the storage industry and the demand driven by AI (artificial intelligence) infrastructure construction. Liu Tengfei, Deputy General Manager of the Equity Investment Department and Fund Manager of Xinwo Fund, analyzed to Securities Daily that AI training servers require high-bandwidth storage configurations, and their storage subsystem’s value contribution has increased several times compared to traditional servers. Currently, the production capacity of Korean semiconductor giants SK Hynix and Samsung Electronics has been long-term locked by AI orders, and storage-related demands have shifted from general components to core strategic materials for AI infrastructure. As a result, these two companies have achieved both performance and valuation upgrades. In the first quarter report, Huatai-PineBridge fund managers Liu Jun and Li Muyang also stated that both China and Korea’s semiconductor industries benefit deeply from the industry cycle.

Driven by both performance and capital inflows, the secondary market price of the China-Korea Semiconductor ETF managed by Huatai-PineBridge has continued to diverge from its net value, with significant premium risks. According to statistics from Securities Daily, this year, Huatai-PineBridge has issued 138 risk warnings about premium levels for this product and applied for 37 temporary suspensions, repeatedly warning the market of the risks of chasing high.

To address potential extreme situations such as涨停 (limit-up),熔断 (circuit breaker), and other trading halts in the Korean market, Huatai-PineBridge updated the fund’s prospectus at the end of March, making important revisions to the procedures for handling “cash substitutes” during subscription and redemption. In summary, the key change is: when constituent stocks experience liquidity shortages, the fund manager “has the right” to settle based on a reasonable valuation, and the settlement date can be extended accordingly, no longer strictly requiring transactions at the current market price or fixed date. In simple terms, in the event of circuit breakers or continuous涨停/跌停 (limit-up/limit-down), the fund manager does not have to force transactions at “failed” prices but can use fairer valuations to settle with investors, allowing more time.

Zeng Fangfang, head of public fund product operations at Qianhai PaiPaiWang Fund Sales Co., Ltd. in Shenzhen, stated that this move aims to prevent the interests of some holders from being damaged due to rigid rules, fully reflecting the fund manager’s responsibility to protect all fund unit holders.

Expert Advice Focused on Long-term Allocation

For ordinary investors, Zeng Fangfang reminded that when investing in cross-border semiconductor ETFs, several risks should be noted: first, high premiums may converge as market sentiment cools, which could lead to losses even if the index does not fall; second, some overseas stock markets have relatively fragile liquidity, and there is a risk of concentrated selling under negative news; third, some index components are relatively concentrated, and single events could significantly impact the ETF.

Morningstar (China) Fund Research Center analyst Cui Yue further advised that investors should not blindly enter based on market enthusiasm but should base their decisions on their own understanding and risk tolerance. Special attention should be paid to the high premium risks of cross-border QDII-ETFs (which raise RMB domestically and invest in overseas capital markets). When secondary market buying sentiment is high, large deviations from net value can easily form premiums, and chasing high may lead to losses as premiums decline. Additionally, some ETFs have small scales and insufficient liquidity, and the mismatch of cross-border trading hours can also affect trading execution. Moreover, QDII-ETFs generally have higher fees than domestic products, which can dilute long-term returns.

Looking ahead, Yang Weiwei, fund manager of the Great Wall Semiconductor Industry Fund, told Securities Daily that the current semiconductor rally is mainly driven by AI’s reshaping of the industry chain. Overseas semiconductor industries have benefited earlier and more directly from AI investment. Referring to the historical performance of the Philadelphia Semiconductor Index, the rise of A-share semiconductor stocks is likely not just a short-term emotional boost. The market outlook remains optimistic about the sustainability of the rally, with potential upside depending on market liquidity and the pace of industry advancement.

Yang Weiwei advised ordinary investors to focus on long-term planning, cautiously allocating based on the high growth potential, large space, and long cycle of China’s semiconductor industry, to better seize the investment dividends brought by industry transformation.

(Edited by: Xu Nannan)

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