Summary of Key Points
The Caitong Fuxin Fixed-Open Hybrid Fund, managed by Caitong Fund, has performed exceptionally well outside the exchange (rising fourfold in the past year and more than oncefold this year), but its trading price on the exchange is 51% higher than its actual net asset value (known as a “high premium”). Due to the excessive premium, the fund has been suspended multiple times to warn investors of potential risks, and it has also been placed under close surveillance by the Shanghai Stock Exchange. This situation is caused by the suspension of subscriptions and redemptions outside the exchange, leading to a scarcity of shares on the exchange. Additionally, individual investors have driven up the price far beyond its actual value. Experts warn that such high premiums are irrational, and once the market calms down, the price could plummet, resulting in significant losses for those who bought at high prices.
Detailed Explanation
1. Why is the trading price on the exchange 51% higher than the net asset value?
Simply put, a fund has two prices: one is the “net asset value” (the actual value of the fund, for example, 9.5 yuan), and the other is the “trading price on the exchange” (the price at which it is bought and sold on the stock market, currently over 14 yuan). A premium rate of 51% means the trading price is more than half higher than the net asset value.
There are two main reasons for this:
- Limited access outside the exchange: The fund has a 18-month lock-up period, and subscriptions and redemptions are currently suspended. Those who want to invest can only do so through transactions on the exchange. With a limited number of shares available for trading, prices have been driven up by demand.
- Investor speculation: According to the annual report, 91% of the fund’s investors are individual investors. Many of them have bought into the fund due to its impressive performance (a fourfold increase in one year), regardless of whether the price is reasonable, further driving up the premium.
2. Why has the fund been suspended multiple times? What does the Shanghai Stock Exchange’s surveillance mean?
The fund’s suspension is not a sign of problems; rather, it is a measure taken by the fund company and the exchange to prevent investors from suffering heavy losses:
- Fund suspensions: The fund was suspended for one hour on the morning of June 5th and again until the close of trading that day. In the past two days, trading has only been allowed for one hour per day. The purpose is to alert investors that the price is too high and to discourage purchases. After all, spending 14 yuan for an asset worth only 9.5 yuan carries significant risk.
- Shanghai Stock Exchange surveillance: The fund has been placed on a “close monitoring” list to detect any potential manipulation of prices by malicious actors. If abnormal trading activities are detected, more stringent measures (such as trade restrictions) may be imposed to prevent market chaos.
3. Why has the fund performed so well? Which “top-performing stocks” does it hold?
The fund’s strong performance in the past year is largely due to its focus on technology stocks:
- Heavy exposure to tech stocks: The top ten holdings in the first quarter were all from the electronics and communications sectors, such as Yuanjie Technology (up 198% this year), Dingtai High-Tech (185%), and Zhongji Xuchuang (93%). These stocks have even increased in value by tenfold in the past year. As the fund’s net asset value has risen with these stocks, its performance has been impressive.
- Competent fund manager: The manager, Jin Zi, is the chief equity investment officer at Caitong Fund and has 16 years of experience. Ten out of the 13 funds he manages have increased in value by more than 100% this year, demonstrating his expertise. However, while the net asset value has indeed risen, the trading price on the exchange is excessively high relative to the actual performance.
4. How does this fund differ from the “Silver LOF” scandal last year?
From late last year to early this year, the Guotou Ruoyin Silver LOF also experienced a significant drop in value due to a high premium (a 31% decline in net asset value in one day). However, the risks of this fund are different:
- Silver LOF’s issue: It invested in international silver futures, which are subject to large price fluctuations. A sudden plunge in international silver prices could cause a sharp drop in the net asset value.
- This fund’s issue: It invests in A-share technology stocks, so the net asset value is not likely to plummet suddenly. However, the high premium means that if demand for the shares declines, the trading price on the exchange will fall back towards the net asset value (from 14 yuan to 9.5 yuan), resulting in significant losses for those who bought at high prices. In other words, while the Silver LOF’s problem was related to the underlying assets, this fund’s issue is with the excessive premium.
5. What pitfalls should ordinary investors avoid?
- Avoid funds with high premiums: Especially those with suspended subscriptions and redemptions outside the exchange, as there is no opportunity for arbitrage (you cannot buy shares at a lower price outside the exchange to sell on the exchange). The price is entirely driven by speculation and can drop suddenly.
- Focus on the net asset value, not the trading price: When buying a fund, first check the net asset value (the actual value) and then the trading price. If the trading price is much higher than the net asset value, avoid purchasing it.
- Be aware of liquidity risks: This fund has a small trading volume on the exchange. If many investors want to sell their shares at the same time, there may not be buyers, leading to a sharp drop in the price.
Final Warning
While the fund’s performance is impressive, its trading price on the exchange has become detached from its actual value. It’s like buying an apple that is actually worth 5 yuan but being sold for 8 yuan by speculators. Stay rational; high returns often come with high risks, especially when the price is driven by artificial speculation, which can reverse at any time.