Summary of Key Points
Recently, there has been a new wave of financial products breaking below their net asset value (NAV), with R2-rated (medium to low risk) fixed-income + products being the hardest hit. More than 1,700 products have a NAV below 1 yuan, representing a break-even rate of over 2.5%, and some products have experienced annualized losses of over 5% in the past month. The reasons include adjustments in the bond market and fluctuations in equity assets, as well as financial companies increasing their allocation to "fixed-income +" (bonds with a small portion of stocks/c convertible bonds) to boost returns, making these products more sensitive to market changes. Although the scale of this issue is smaller than in 2022, investor concerns about redemptions have risen, and financial companies are issuing statements to reassure investors. Some products have failed to raise enough funds due to lack of interest. Experts advise investors to focus on the risk level of products rather than whether they have broken below their NAV.
Current Situation of the Break-Even Trend: R2 Fixed-Income + Products as the Hard Hit
Previously, R2-rated fixed-income + products were considered almost like deposits, offering stable returns with little risk. However, now many are experiencing significant losses:
- Doubled in Number: The number of products with a NAV below 1 yuan has more than doubled since late July, with the break-even rate rising from a low level at the beginning of the month to over 2.5%.
- Significant Losses: For example, the product held by Wang Li has experienced an annualized loss of 5.86% in the past month, and losses have been increasing over the past three to six months.
- Mainstream Products Failing: 80% of the products with a NAV below 1 yuan are R2-rated, and 66% are fixed-income + products—these products, once seen as safe investments, are now causing major losses, which explains why there are more complaints on social media.
Why Have "Fixed-Income +" Products Become a Problem?
There are two main reasons for the poor performance of these products:
1. Cooling Bond Market: At the end of half-year, both companies and banks were in need of funds (tightening financial conditions), and market expectations for monetary policy changed (fear that interest rates would not continue to decline), leading to a drop in bond prices. Since bonds form the foundation of fixed-income + products, their instability has caused losses.
2. Negative Impact from Equity Assets: Financial companies added more stocks and convertible bonds to their fixed-income + portfolios to increase returns (with an average equity allocation of about 5%, and some aggressive products investing up to 80% in stocks). The stock market has been volatile since June, especially the tech sector, causing these assets to decline and dragging down the product NAVs.
Is This Situation Worse Than in 2022?
The 2022 break-even trend led to a wave of redemptions, but this time it's different:
- Smaller Scale: The extent and amount of losses are much smaller than in 2022.
- More Mature Responses: Financial companies have more diversified their asset portfolios (for example, Ping An Finance reduced its exposure to tech stocks in advance), and investors are more accustomed to NAV fluctuations.
- Predictable Volatility: This time, the decline is mainly affecting fixed-income + products, unlike 2022 when even pure bond products were losing value. If the stock market recovers, these products' NAVs could rise again.
However, it's important to note that the pressure of product prices falling below their NAV is increasing (from a mild spread at the beginning of July to a widespread issue in late July), and the high proportion of R2-rated products indicates that many investors still do not realize that "medium to low risk" does not equal zero risk.
Financial Companies Are Panicking: Issuing Reassurance Statements and Facing Increased Fund-Raising Failures
To address investor concerns, financial companies have taken the following actions:
1. Providing Comfort: Banks and financial companies such as ICBC, Ping An, and China Merchants Bank have issued statements saying that temporary setbacks are normal in a net asset value-based investment approach and advising against panic buying and selling.
2. Difficulty in Selling Products: Investors are hesitant to purchase, leading to an increase in failed fund-raising attempts. Since June, more than ten products from banks like China CITIC Bank and China Everbright Bank have failed to raise enough funds (for example, not meeting the minimum requirement of 5 million yuan).
What Should Ordinary Investors Do?
Experts offer four practical suggestions:
1. Accept Volatility: In a net asset value-based system, losses are normal; don't redeem products immediately when their NAVs drop, as this can lead to further losses.
2. Consider Risk Levels: Don't rely solely on the "fixed-income +" label; check the underlying assets (whether there are stocks), risk levels (R1 to R5), and historical maximum drawdowns before making a purchase.
3. Diversify Your Investments: Don't put all your money into one type of product; spread it across different products with varying maturities and types (e.g., some in cash management and some in fixed-income + products).
4. Choose Reliable Institutions: Evaluate the research and investment capabilities of financial companies, such as their ability to adjust portfolios in advance and diversify assets.
In summary, investing in financial products is no longer a sure thing; you need to put some thought into your choices and stop being misled by low-risk labels.