Investors take a dim view of QDII funds

Although funds operating under China's Qualified Domestic Institutional Investors (QDII) scheme started 2013 on a high note following strong gains last year as the global financial market recovered, uncertainties over the future direction of the overseas market continue to cast a shadow over these products with many local investors, experts told the Global Times Tuesday.

As of the end of December, the 51 QDII funds whose 2011 figures were available saw their net asset value (NAV) rise by an average of 9.38 percent in 2012 over the pervious year, outperforming the mainland fund market, according to data from iFind, a financial information provider.

This trend has carried into 2013, with funds that invest in US stocks seeing their NAV grow by nearly 5 percent on average so far this month, the China Securities Journal reported Tuesday.

"Compared with 2011, rebounding global stock markets have contributed greatly to the much-improved performance of QDII funds both last year and in recent days," Qu Wenqian, a cross-border market analyst from Z-Ben Advisors, told the Global Times Tuesday.

As of Tuesday, the Hang Seng Index in Hong Kong had gained 4.41 percent to 23,655 points since the start of this year after climbing 22.91 percent in 2012; while as of Monday, the Dow Jones Industrial Average was up 5.94 percent for the month so far to 13,881 points following an increase of 7.26 percent last year.

Yet, despite the substantial NAV gains, Chinese investors appeared largely indifferent to what QDII funds achieved last year judging by the high redemption rates seen during 2012. Figures from Wind, a financial data provider, show that while 85 percent of the country's QDII funds grew in value last year, 90 percent of them were net redeemed.

Even though some overseas equity markets are setting new highs, investors are doubtful whether the upswing will continue and many who saw rises in their QDII funds have already locked in profits, said Qu.

"Mainland investors have always been skeptical about the profitability of QDII funds because these investment products, which allow mainland investors to take position in financial products overseas via certain fund management institutions, were officially launched in late 2007 and suffered huge losses the following year thanks to the global financial crisis," Qu explained.

Meanwhile, a senior fund research manager who asked to remain nameless added that some research teams for aggressively managed QDII funds are not large enough to undertake the necessary research work needed to maximize the profitability of these products, a fact which may underscore their weak appeal to investors.