A new regulatory proposal from the Shanghai and Shenzhen stock exchanges, issued on August 7, is set to bring an end to the exchange-traded life of 33 QDII LOF products. Under the new rules, these funds must be delisted by the end of 2027 at the latest, involving 18 fund companies including E Fund, Hwabao, Harvest, and China Southern.
The 33 products span a creation period of 13 years, with the earliest launched in 2010. The oldest is the Harvest H-share LOF (160717.SZ), established on September 30, 2010, nearly 16 years ago. Other early funds include the Invesco Great Wall Anti-Inflation LOF (161815.SZ) from 2010 and a batch from 2011, such as the Harvest Gold LOF, E Fund Gold Theme LOF, Hwabao Oil & Gas LOF, China Southern Hong Kong LOF, and others. The youngest are two products launched in 2023: the Invesco Great Wall Global Chip LOF and the Hwabao Overseas Technology LOF, which will have only survived on the exchange for about three years before facing delisting. The transition period of over a year allows fund companies and holders time to adjust, with options to convert to over-the-counter funds or liquidate, without affecting normal OTC share subscriptions and redemptions.
Long-term performance among these products shows significant divergence. The top three performers are all from the E Fund stable. The E Fund S&P Information Technology LOF leads with a return of 575.99% since inception, followed by the E Fund Nasdaq 100 LOF at 343.13% and the E Fund S&P 500 LOF at 216.92%. The Invesco Great Wall Global Chip LOF and Hwabao US Consumer LOF also performed well, with gains of 206.65% and 190.20%, respectively. In contrast, the Bank of Communications Schroder China Internet LOF presents a dramatic case. Launched in May 2015, its return since inception is a mere 0.83%. Despite having an exchange-traded size of 877 million yuan and a total size of 5.585 billion yuan, making it the largest QDII LOF, its year-to-date return is -19.21%, dragged down by the ongoing adjustment in Chinese concept stocks.
On the losing side, the 国泰商品 LOF has a return of -37.5% since inception, mainly due to the prolonged downturn in the commodity market. Other funds like the Harvest H-share LOF, Hwabao Oil & Gas LOF, Invesco Great Wall Hang Seng China Enterprises LOF, and E Fund Hong Kong Small Cap LOF are also in the red, with returns falling over 10% since inception. Notably, some products have rebounded significantly this year. The global chip LOF leads with a 54.92% gain, benefiting from the recovery in the global semiconductor industry. The China Southern Crude Oil LOF, E Fund Crude Oil LOF, and Harvest Crude Oil LOF have risen by 47.65%, 45.64%, and 44.06%, respectively, driven by the strong performance of international oil prices in the first quarter. The top-performing products this year are almost exclusively concentrated in chips, crude oil, and information technology sectors.
As of August 7, the exchange-traded sizes of these 33 products vary widely. The largest is the E Fund S&P Information Technology LOF with an exchange-traded size of 3.247 billion yuan, totaling 4.268 billion yuan including all share classes, ranking second among all QDII LOFs. The smallest is the SDIC China Value LOF with an exchange-traded size of just 6.7 million yuan, despite a total size of 64 million yuan. This fund, launched in 2015, has a return of 87.9% since inception but has never grown significantly. Other funds like the Dacheng Hang Seng Index LOF, China Southern Hong Kong LOF, and Harvest H-share LOF also face small-scale challenges, with exchange-traded sizes under 100 million yuan. The total exchange-traded size of all 33 products is about 18.3 billion yuan. Under the new rules, funds with an exchange-traded net asset value below 10 million yuan for 60 consecutive trading days trigger delisting, and some mini-funds like the SDIC China Value LOF and Dacheng Hang Seng Index LOF have already hit this threshold.
The QDII LOFs are being delisted due to the inherent risk of high premiums. Limited QDII foreign exchange quotas and restricted subscriptions lead to insufficient supply of exchange-traded shares, causing prices to deviate significantly from net asset values. This is exacerbated by poor liquidity in some products, making them prone to speculative trading. Many products, including the global chip LOF and China Southern Crude Oil LOF, have frequently issued premium warning announcements since August, with some suspending trading. High premiums mean investors buy at prices far above actual value, risking significant losses if premiums decline or if the fund is delisted and redeemed at net asset value.
The delisting of these 33 QDII LOFs represents a regulatory correction of high-premium speculation and a streamlining of the public fund industry. Holders have until the end of 2027 to choose between selling, redeeming, or transferring shares to over-the-counter holdings. However, for investors accustomed to short-term trading of QDII products on the exchange, these familiar faces will gradually disappear from trading platforms.
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