The increasingly prominent QDII (Qualified Domestic Institutional Investor) funds have recently embarked on a noteworthy journey of fee reductionAmid rising investor interest and a flourishing market environment, fund companies are responding to regulatory guidance that encourages lowering fees for these popular investment vehicles.

As of February 10, records indicate that 22 fund firms have announced fee cuts for a total of 79 QDII productsIndustry insiders reveal that this movement towards reduced fees is largely influenced by regulatory bodies, with expectations that additional funds may adopt similar measures in the future.

Despite periodic risk warnings and even temporary trading halts, many QDII funds have continued to attract significant financial backing from investors, who seem undeterred by potential risksData from Wind illustrates a remarkable surge in the cumulative scale of QDII funds, nearing 610 billion yuan by the end of 2024—nearly a 50% growth within just one year.

A case in point of this trend is Haifutong Fund, which on February 10 announced a decrease in management and custody fees for its Haifutong Overseas Select fundThe management fee is now reduced from 1.5% to 1.2%, while the custody fee sees a drop from 0.35% to 0.2%. As of the end of 2024, this particular QDII fund is reported to have a total scale of 440 million yuan.

Following suit, several fund companies like Changcheng Fund have similarly announced fee reductions for their QDII productsOn February 7, Changcheng Fund declared lowered management and custody fees for its Global New Energy Vehicle QDII fund down to 1.2% and 0.2%, respectivelyOther prominent establishments, including Huatai-PineBridge and GF Fund, have made comparable moves in the recent past.

By our count, as of early February, the market hosts a total of 308 QDII products sourced from 43 fund companiesOut of these, 79 products from 22 firms have seen their fee structures revised downwards, with significant operations like E Fund and Huatai-Pinebridge cutting fees across multiple products.

A representative from a mid-sized fund company remarked, “Reducing fees aligns with regulatory expectations, enhancing the investment experience for clients, and bolstering the overall competitiveness and appeal of the market.” They acknowledged that while lowering fees may exert some short-term pressure on management income, it is a necessary evolution that aligns with broader industry trends

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Earlier this year, discussions among leading fund company executives hinted at broader fee reductions for QDII and money market funds.

This trend is not merely a spontaneous occurrence; it marks a continuation of the public fund fee reform policy initiated in July 2023. Originating from this reform, many top-tier fund companies led the charge in diminishing management and custody fees, while smaller firms gradually followed suit.

According to our findings, close to 4,117 fund products have had their fees reduced, constituting about 40% of the entire marketThe reductions began with actively managed equity funds, where management fees were cut from 1.5% to 1.2%, and custody fees reduced from 0.25% to 0.2%. Indices-based products and fixed-income funds soon followed suit, extending this practice to QDII products.

Regulatory oversight has consistently emphasized reducing public fund feesDuring a conference held by the State Council Information Office on January 23, Wu Qing articulated the agenda for progressively decreasing the comprehensive fee rates of public funds.

With the fee reform progressing, earlier phases focused on reducing fees for existing products and standardizing public fund transaction commissions have been completedLooking ahead, starting in 2025, further reductions in fund sales fees are on the horizonThis comprehensive reform is set to decrease the public fund fee rate by 18%, generating annual savings of approximately 45 billion yuan for investors.

Simultaneously, the QDII sector has thrived with remarkable speed, yet it operates within certain constraining quotasOver the past two years, the market's recognition and participation in QDII products have surged, leading to significant growth in both number and scaleSome funds, however, have repeatedly highlighted the risks of high premiums and even halted trading temporarily, while maintaining elevated premium levels for certain products.

According to Wind data excluding newly established products, there are currently 304 QDII funds, poised for a combined scale of approximately 609.8 billion yuan by the end of 2024, an increase of 46% from the previous year's 418.5 billion yuan.

Moreover, the number of QDII funds exceeding 10 billion yuan in assets has grown to 16. The E Fund CSI Overseas Internet ETF emerges as the largest, with assets reaching 36.3 billion yuan by 2024, while other notable funds like Harvest Hang Seng Internet Technology Sector ETF and GF NASDAQ-100 ETF have each crossed the 20 billion yuan mark.

The robust growth in scale can be attributed to the commendable performance of QDII products

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Data reveals that, as of February 7, the total index of QDII funds has appreciated by 19.63% over the past two years, in stark contrast to a 12.61% decline in the comparable mixed equity indexImpressively, 24 out of the top 30 funds based on performance over the same period are QDII products.

However, despite the encouraging performance metrics, the scalability of QDII funds faces constraints tied to the foreign exchange quotas allocated to fund managersAs per the State Administration of Foreign Exchange, by the end of January, a cumulative total of 189 financial institutions had been granted investment quotas amounting to 167.79 billion U.S. dollars.

Our analysis highlights that currently, 54 public fund companies possess QDII quotas, among which six companies hold over 3 billion U.S. dollarsThese include major players like E Fund and Harvest Fund, with quotas ranging from 3.7 billion to 7.73 billion U.S. dollars.

As the proportion of employed QDII quotas escalates, the resultant quota constraints have led to restrictions on certain products, with Wind reporting that as of February 10, 147 QDII funds were either limited in purchase or entirely closed to new investments, representing nearly 48% of the totalWith several high-performing products also exhibiting relatively small sizes, the cyclical speculative trading and premium risks have become increasingly evident.

Currently, 33 QDII funds have an indicative price of value (IOPV) premium rate exceeding 3%. Of these, the Invesco Great Wall S&P Consumer Select ETF boasts the highest premium rate at 35.79%, while the Yinhua Industrial Bank Southern East Ying S&P China New Economy Industry ETF and the Bosera CSI Global China Education ETF record premiums of 15.65% and 12%, respectively.

Market analysts attribute the limited QDII quotas as a significant reason behind elevated premiums, indicating that such premium fluctuations reflect the product's popularity and the resultant “hot trading.” An official from a large fund company articulated that without sufficient quotas, fund suppliers cannot meet demand, exacerbating the problem, especially for smaller ETFs which are prone to significant premium discounts

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