Cross-border semiconductor ETF premium rate exceeds 20%; fund companies repeatedly warn of 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 fund’s secondary market premium rate has soared to 20.41%, far above the market-wide average of 1.17% for QDII funds. Performance and risk coexist, reflecting the current high enthusiasm and potential 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, which have significantly increased the value contribution of storage subsystems compared to traditional servers. Currently, the capacity of Korean semiconductor giants SK Hynix and Samsung Electronics has been long-term locked by AI orders, and storage-related demand has 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, Huatai-PineBridge’s fund managers Liu Jun and Li Muyang also stated in their quarterly report that both China and South Korea’s semiconductor industries are deeply benefiting 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 warnings about premium risks for this product and applied for 37 temporary suspensions, repeatedly alerting the market to the risks of chasing high.

To address potential extreme situations such as limit-ups, limit-downs, or circuit breakers 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 subscriptions and redemptions. In summary, the key change includes: when constituent stocks experience liquidity shortages, the fund manager “has the right” to settle based on a reasonable valuation, with the settlement date potentially delayed accordingly, no longer strictly requiring transactions at the current market price or fixed date. In layman’s terms, in the event of circuit breakers or continuous limit-ups/downs, the fund manager does not have to forcibly buy or sell stocks at “failing” prices but can use fairer valuations for settlement, allowing more time for decision-making.

Zeng Fangfang, Operations Officer of Public Fund Sales at Qianhai PaiPai Network Fund Sales Co., Ltd. in Shenzhen, stated that this move aims to prevent the interests of some holders from being harmed due to rigid rules, fully reflecting the fund manager’s responsibility to protect all fund unit holders.

Expert Advice 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 the market based solely 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 result in 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 Great Wall Semiconductor Industry Fund, told Securities Daily that the current semiconductor rally is mainly due to AI reshaping the industry chain. Overseas semiconductor industry chains have benefited earlier and more directly from AI investment. Referring to the historical performance of the Philadelphia Semiconductor Index, the rise of A-share semiconductors is likely not just a short-term emotional boost. The market outlook remains optimistic about the sustainability of the trend, but the potential for further gains depends on market liquidity and the pace of industry development.

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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