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

Reporter Wu Lihua and Xie Dafei

Since March, more than 50 oil and gas themed funds have issued premium risk alerts. Wind data shows that over 40 oil and gas ETFs absorbed a total of 21.83 billion yuan in March. Behind the frantic 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 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 of 1.4631 yuan on March 6.

This wave of high premiums 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 for 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 the net value. For example, the Harvest Oil LOF closed at 1.946 yuan on March 9, a premium of 16.93% over the net value of 1.6643 yuan on March 5.

Faced with uncontrollable premiums, fund companies have had to take measures. Several products, including the S&P Oil & Gas ETF Harvest and Oil Fund LOF, announced suspensions starting from market open on March 10 until 10:30 a.m. Meanwhile, E Fund 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 on-market prices soar. Once overseas markets pull back, investors chasing high prices will face a ‘Davis double kill’: they will suffer losses from net asset value declines 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 investors who bought at high premiums faced liquidity crises due to concentrated redemptions, with net value 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 Highlighted: 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 QDII fund sizes continuously expanding since 2026, and oil and gas themed products becoming popular targets for capital inflows. On the other hand, supply is rigidly limited, 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 securities QDII quota is approximately $161.7 billion, with fund companies accounting for about 40%, and new quota approvals becoming more stringent. This means that, within the current quota framework, the supply elasticity of oil and gas QDII funds is extremely limited.

“Many retail investors treat LOFs like stocks, not paying attention to net value,” said a staff member at a securities firm. “Recently, many clients asked me why the oil prices rose but the funds didn’t, or why the fund hit the daily limit but the net value 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 LOFs is the same as the fund’s net value, but they are unaware that the secondary market trading price can significantly deviate from the net asset value.

An analyst from a securities firm pointed out that QDII-LOF products are 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 the net value, investors can subscribe for fund shares and sell in the secondary market to reduce premiums. But with limited QDII quotas, the subscription channels are blocked, arbitrage fails, and premiums continue to grow.”

The analyst suggested 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 a necessary approach 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 like pre-drawing future returns. For example, if an investor buys the Harvest Oil LOF at a 16.93% premium, it means that even if oil prices continue to rise, they need an increase of more than 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 LOF’s daily fluctuations with those of ordinary funds, leading investors to mistakenly believe that on-market 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 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 may face dual losses from net value 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 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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