QDII Fund Premium Risk Accumulates, Be Cautious of "Liquidity Trap" When Chasing Gains

Reporter Wu Lihua and Xie Dafei

Since March, over 50 oil and gas-themed funds have issued premium risk alerts. Wind data shows that in March, more than 40 oil and gas ETFs absorbed a total of 21.83 billion yuan in funds. Behind the frenzy of capital inflows, high premium risks are accumulating. In response to frequent high premiums, fund companies have been forced to take measures such as suspending trading and restricting subscriptions.

Premium Risk Accumulation: Fund Companies Urgently “Put Out Fires”

On March 10, E Fund’s crude oil LOF issued a premium risk warning. As of the close that day, the fund’s secondary market price was 1.616 yuan, over 10% premium compared to the net asset value (NAV) of 1.4631 yuan on March 6.

This round of high premium in oil and gas funds stems from sharp fluctuations in international oil prices combined with geopolitical risks. On March 9, ICE Brent crude futures briefly hit $119.50 per barrel, an increase of over 50% year-to-date, igniting domestic investors’ enthusiasm to allocate overseas oil and gas assets via Qualified Domestic Institutional Investor (QDII) funds.

However, short-term capital inflows caused the trading prices on the market to deviate significantly from NAV. For example, the closing price of Harvest Oil LOF on March 9 was 1.946 yuan, a premium of 16.93% over the NAV of 1.6643 yuan on March 5.

Faced with uncontrollable premiums, fund companies had to take action. Several products, including the S&P Oil & Gas ETF, Harvest Oil Fund LOF, announced suspension of trading from market open on March 10 until 10:30 a.m. Meanwhile, E Fund’s crude oil LOF also triggered a suspension mechanism due to a premium rate of 24.52%.

“This is essentially a liquidity mismatch issue,” said a senior executive in the QDII business of a leading fund company. “QDII quotas are limited, and fund companies cannot stabilize premiums through subscription arbitrage mechanisms. They can only watch as the market price soars. Once overseas markets pull back, investors chasing gains will face a ‘Davis double whammy’: suffering losses from NAV decline and the impact of premium convergence.”

The executive noted that based on historical experience, during the international oil price crash in April 2020, some oil and gas QDII funds experienced liquidity crises as investors who bought at high premiums redeemed en masse, with NAV dropping over 20% in a single day. Under current market conditions, if the Middle East situation eases or the global economy recovers less than expected, leading to a correction in oil prices, similar scenarios could recur.

Structural Contradictions Emerge: Investor Education Remains a Heavy Task

High premiums in oil and gas QDII funds are not new, but this crisis has exposed deep-rooted structural contradictions in the industry.

On one hand, investor demand for overseas asset allocation has surged, with the size of QDII funds continuously expanding since 2026, and oil and gas-themed products becoming popular targets of capital. On the other hand, supply is rigid, and under supply-demand imbalance, premiums have become the norm.

Wind data shows that as of March 10, the total size of oil and gas ETFs in the market increased by over 40% since the beginning of the year. According to the latest approval status of QDII investment quotas, by the end of 2025, the total quota for securities-based QDII funds is about $161.7 billion, with fund companies accounting for roughly 40%, and new quota approvals becoming more stringent. This means that under the current quota framework, the supply flexibility of oil and gas QDII funds is very limited.

“Many retail investors treat LOFs like stocks, not paying attention to NAV,” said a staff member at a securities firm. “Recently, many clients asked me why the oil price has risen but the fund hasn’t, or why the fund hit the daily limit but NAV didn’t increase. This shows a serious misunderstanding of the product mechanism.” The staff also mentioned that some clients mistakenly believe that the purchase price of LOF equals the fund’s NAV, but they are unaware that secondary market trading prices can significantly deviate from NAV.

An analyst from a securities firm pointed out that QDII-LOF products were designed to provide liquidity, but in extreme market conditions, they can amplify risks. “LOF products allow investors to trade in the secondary market like stocks, theoretically enabling arbitrage: when the market price exceeds NAV, investors can subscribe for fund shares and sell in the secondary market to reduce premiums. But with limited QDII quotas, the subscription channel is blocked, arbitrage fails, and premiums keep expanding.”

The analyst recommended establishing a dynamic allocation mechanism for QDII quotas, allowing fund companies to temporarily increase quotas when premiums exceed certain thresholds, using market-based methods to correct price distortions. In the long run, this is the only way to resolve structural contradictions.

A senior official from a public fund in South China said that fund managers should strengthen risk control, proactively alert investors when premiums exceed 10%, and consider suspending trading to prevent investors from blindly chasing high premiums. “But the fundamental solution still lies in investor education—making retail investors understand that buying at high premiums is essentially an advance withdrawal of future returns. Take Harvest Oil LOF as an example: if investors buy at a 16.93% premium, even if oil prices continue to rise, they need an increase of over 16.93% just to cover the premium cost. When premiums revert, losses could far exceed the decline in the underlying asset.”

The official further pointed out that some online platforms’ fund sales pages are misleading. “Some platforms only show recent yield rankings without highlighting premium risks; others conflate the daily fluctuations of LOFs with those of ordinary funds, leading investors to mistakenly think that intraday gains are actual returns. These practices need regulation.”

Safeguarding Industry Reputation: Normalized Risk Control Mechanisms Needed

In the face of frequent premium risks, industry self-discipline management still needs to be normalized.

“Regulatory intervention is necessary but cannot replace market mechanisms,” said a compliance officer at a fund company. “More importantly, fund companies should establish ongoing risk prevention mechanisms. For example, fund managers can include provisions in the fund contract to automatically trigger share redemption or trading suspension when premiums exceed certain levels, avoiding delays caused by human judgment.”

The compliance officer also suggested that fund companies strengthen communication with sales channels, ensuring that financial advisors fully understand LOF product features and adequately disclose premium risks when recommending products. “Currently, many sales staff focus on product yields and give superficial risk warnings. This sales-oriented approach needs to change.”

Industry insiders worry that if international oil prices decline, investors who bought at high premiums now may face dual losses from NAV drops and premium convergence, potentially triggering a new wave of complaints and redemptions, damaging the industry’s reputation. The compliance officer admitted, “Our biggest concern is a collective incident. If many investors suffer losses simultaneously, it could lead to concentrated complaints or even lawsuits, which would undermine the credibility of the entire fund industry.”

Many industry experts believe that solving the high premium problem in QDII funds requires multi-party efforts. These include moderately increasing securities-based QDII quotas to ease supply-demand tensions; improving LOF trading mechanisms and introducing market makers to enhance liquidity; fund companies strengthening product innovation and investor education; and sales channels returning to proper suitability management to prevent misleading sales. Only through these measures can the cycle of “liquidity traps” be broken, protecting investors’ rights and promoting healthy industry development.

(Edited by Xu Nannan)

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