The net value of the SDIC Essence Silver LOF plunged over 30% in a single day, severely testing the fundamental design logic of this product. Facing substantial losses, some investors proposed a straightforward "self-help" idea: could the fund company temporarily break from convention and use derivatives for hedging to apply a "patch" against declines? However, is this seemingly ideal solution feasible in reality, and are there similar overseas products for reference?
An industry investigation reveals that the answer is "difficult," primarily hindered by three barriers: product positioning, risk matching, and practical implementation. Notably, since February, the SDIC Silver LOF has experienced four consecutive limit-downs, closing at 3.443 yuan with a latest premium rate of 37.12%.
The hopeful idea of a decline-protection "patch" clashes with three practical barriers. A suggestion widely discussed on platforms like Xiaohongshu is: "In such extreme circumstances, could SDIC Essence Fund apply for a temporary突破 in position or derivative investment limits to activate hedging tools?" The fund's prospectus indicates it holds silver futures contracts valued at no less than 90% and no more than 110% of its net asset value, with warrants (including options) limited to no more than 3%.
This request is intuitive: since the product suffers heavy losses during declines, can technical means "patch" it to be more resilient? A mutual fund research professional provided a layered analysis based on industry realities. First, regarding objective change: what exactly are investors aiming for? The professional emphasized that most investors participate in silver products to track silver price trends. The SDIC Silver LOF invests in futures because the Shanghai Futures Exchange's silver futures contracts are relatively active, supporting certain fund flows, whereas the silver spot market lacks sufficient depth. The product's strict contract defines its pure tool attribute, aiming for a daily tracking deviation under 0.5% and an annual tracking error under 7%. Attempting hedging to "rise with gains but not fall with losses" would shift it from a passive tracker to an actively managed product, deviating from its original purpose.
Second, the principle of investor suitability: can current holders bear the risks of hedging strategies? Hedging is an investment objective but doesn't eliminate risks; it may even amplify losses if strategies fail. The fund's over ten-billion-yuan holders generally match its R4 medium-high risk level. Introducing more complex strategies would disconnect the product's risk from these investors' tolerance, creating a mismatch regardless of intent.
Third, tool scarcity and practical feasibility doubts: even overseas, finding mature products achieving perfect hedging for a single commodity like silver is challenging. Overseas products similar to the SDIC Silver LOF include the PowerShares DB Silver Fund (DBS), which primarily invested in silver futures but faced rollover costs and contango/backwardation issues, especially during extreme volatility, and was liquidated in March 2023. The largest global silver product, iShares Silver Trust (SLV), holds physical silver and fell 28.54% on January 30, 2026. The research professional noted that all product designs have historical limitations; no one could foresee such extreme conditions a decade ago. The root risk lies in the unpredictability of markets tracking international prices via domestic futures, not mere operational errors.
For international reference, physical silver ETFs hold more relevance. The SDIC Silver Fund is nearly unique in China's public fund market as the only LOF directly investing in silver futures. Globally, mainstream silver investment products include physical silver ETFs, silver futures, silver miner ETFs, bank paper silver, and physical bars/coins. Among these, physical silver ETFs are most instructive for China's public fund industry. Their "physical anchoring + share-based" design addresses high thresholds and storage costs, with standardized shares suiting public funds' inclusive positioning and custody mechanisms ensuring fair net value. Mechanisms like "physical creation/redemption + secondary market arbitrage" curb premiums/discounts, improve tracking accuracy, and low-cost strategies align with domestic investor needs. This model could fill the gap in domestic physical silver public products, fit regulatory requirements and investor risk preferences, and enhance the commodity product line with strong feasibility.
Could the SDIC Silver LOF transition to a QDII-FOF model? 2025 saw growth in commodity funds, broadly categorized into four types with different investment targets and risk management logics. The largest category, represented by gold ETFs like Huaan Gold ETF and Bosera Gold ETF, invests almost entirely in Shanghai Gold Exchange spot contracts, facing单一 risks of gold price fluctuations without leverage or complex factors like futures rolls. Second, funds directly investing in domestic commodity futures, covering silver, non-ferrous metals, soybean meal, and energy chemicals, provide futures price exposure with more complex risk controls. As mentioned, these funds typically limit futures investments to 90-110% of NAV, retaining cash for volatility, and cap single contract or maturity exposures to avoid concentration risks. For example, Dacheng Non-ferrous Metals Futures ETF's 2025 Q4 report showed strict adherence to holding 90-110% of NAV in index component futures, tracking six SHFE non-ferrous metals. Such products often exist as ETFs with diversified scopes, employing cash management to handle risks and tracking errors.
Third, cross-border commodity funds operating via QDII channels. Notably, mainstream commodity LOFs like Harvest Crude Oil LOF and E Fund Gold Theme LOF mostly follow a QDII-FOF model, differing fundamentally from the SDIC Silver LOF's design. These involve domestic funds investing in overseas funds that hold underlying assets, with managers focusing on selecting overseas tools, while complexities like futures limit-ups or rolls are handled by those overseas managers, providing a buffer layer for risk isolation. Converting the silver LOF to QDII mode would face a core issue: what underlying to invest in—futures or spot? If still futures, it offers no essential improvement. A key constraint is that domestic silver ETFs are unviable due to taxation—silver spot investments incur taxes, unlike gold's tax-exempt status.
The fourth category comprises commodity resource stock funds, like gold stock ETFs and coal ETFs, investing in related listed companies' stocks. These are essentially equity investments, reflecting both commodity prices and stock market logic, with risk controls similar to equity funds, focusing on sector diversification, stock selection, and systemic risk prevention, where commodity volatility is just one factor affecting net value.
How can limited measures cope with unlimited market conditions? The SDIC Silver LOF's valuation incident has drawn high attention in the public fund industry. According to multiple fund research professionals, product designs have historical limitations based on past knowledge, unable to predict future extremes. When the largest risk source emerges, fund companies essentially use limited measures against unlimited market conditions, so post-event optimizations are often partial, unable to meet investors' zero-loss expectations. Current discussable improvements mostly involve process optimizations, like advancing risk announcements from Monday to weekend. Suggestions seemingly protecting investors directly, such as suspending subscriptions/redemptions during extreme volatility, are considered unlikely under existing regulations. This event, as an extreme precedent, is expected to prompt thorough industry review and reflection on such product categories, potentially adjusting future design philosophies and risk control standards due to this stress test.
Comments