Mini money market funds become "killers" of returns; buying incorrectly for one day could result in losing 7 years of interest

A well-behaved money market fund could also become a "killer" of investors' wealth.

On the afternoon of January 24, several money market funds began to show unusual upward movements.

Including China Life Money ETF, Huatai Tianjin Gold, and other four money market funds hit the daily limit, showing enthusiasm similar to that of cross-border funds a few weeks ago.

Among them, China Life Money ETF rose to a maximum of 110.055 yuan, ultimately closing at the limit price, with a premium rate reaching 10%, ranking first in the market for fund gains.

This has sparked intense external attention.

Premium Equals 7 Years of Interest

It is reported that the daily trading price of money ETFs usually hovers around the par value (100 yuan), and an unreasonable high premium will significantly harm investors' yields.

According to the latest calculations from WIND, the average seven-day annualized return rate of money ETFs is currently around 1.5%, which translates to a daily yield of approximately 0.0004, which almost does not affect the trading price of money ETFs.

Taking the more active China Life Money ETF as an example, on the 24th, the maximum premium rate was about 10.06%. Compared to the fund's latest annualized yield of 1.424% (as of January 23), a 10% premium rate is roughly equivalent to the fund's interest over 7 years.

In other words, if an investor buys this ETF at a premium rate of around 10%, the yield after holding it for the medium to long term will be very concerning.

No Reason for Significant Premium

So, is there any reason for the significant premium of these soaring money market funds?

Currently, there is no evidence of that.

Due to the low and relatively stable daily returns, the usual trading status of money ETFs is small fluctuations around the par value.

Most of the time, the daily volatility of actively traded money ETFs is at the level of one or two ten-thousandths (for example, in the chart below).

Even on the same day, January 24, the most actively traded Huabao Tianyi ETF had a daily volatility that did not exceed six ten-thousandths.

Meanwhile, the volatility level of mini money ETFs is more than 100 to 150 times that of large money ETFs.

Not Comparable to Cross-Border ETFs

Someone has suggested that in the past two weeks, the premium rate of cross-border ETFs has been very high (see the chart below). Could it be that the "popularity" of cross-border ETFs has spread to money market funds?

This speculation also lacks reasonable logic.

The surge in the premium rate of cross-border ETFs is related to the recent strong performance of overseas markets and limited supply.

However, for domestic money market funds, whether online or offline, the overall supply is very ample, and there are many varieties, so investors have no need to pay a premium for individual varieties.

Moreover, the high premium rate of cross-border ETFs inherently carries the risk of a decline (see the chart below). There have been continuous risk warnings regarding the high premiums of related products.

Therefore, the high premium rate of money market ETFs is difficult to sustain in the long term from any perspective.

Where Will It Develop in the Future

Upon closer observation, we can also find that the money market funds that exhibited high premium rates on the 24th are mostly so-called "mini" turnover funds with low trading volumes.

For example, the China Life Money Market ETF had zero transactions on two of the three days leading up to the surge on the 24th.

The Huatai Zijin TianTianJin ETF also often has zero trading situations, and both belong to products that have long lacked turnover.

Such products only require a few million yuan in buy orders on a single day to instantly push the related fund to its daily limit.

In fact, this was the case on January 24th.

So what might the future direction of this product be?

First, due to the lack of liquidity in related products, if speculative funds in the market "act recklessly," there is a possibility that related funds may surge again. However, such sustained surges will inevitably be short-lived.

Second, it is also possible that some high-premium products may start to return to their net asset value on the next trading day. Since money market ETFs operate on a "T+0" trading mechanism, it is even possible that some buy orders that rushed in on the 24th have already been sold during the session.

Third, whether prices surge or decline in the short term, just like all high premium funds eventually return to their net asset value, money market funds lacking attractive yields can only move towards a return to net asset value in the medium to long term.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at your own risk