In-Depth Analysis of High Premium Risk of LOF Funds: A Warning from the SDIC UBS Silver Futures LOF Case

According to the latest market information, SDIC UBS Silver Futures LOF issued consecutive premium risk warning announcements for 6 days from January 5 to 10, 2026, which is a continuation of the intensive risk warnings issued by the fund since December 2025 [1][2]. As the only public fund product tracking silver futures in the entire market, SDIC UBS Silver Futures LOF experienced severe market volatility in the fourth quarter of 2025, with its premium rate surging to 68.19% at one point, followed by consecutive limit-downs when arbitrage funds fled collectively, providing investors with a vivid risk education lesson [3][4].

As of January 9, 2026, the net asset value per share of the Fund’s Class A shares was RMB 2.1311, while the secondary market closing price reached RMB 2.530, keeping the premium rate at a relatively high level. Meanwhile, the price of the domestic silver futures main contract dropped from an all-time high of RMB 20,235 per kilogram to RMB 17,803 per kilogram, with a fluctuation range of over 12% [5]. This dual risk of “high premium plus high volatility” has significantly amplified the investment risk of the fund.

In terms of market size, the share scale of SDIC UBS Silver Futures LOF reached RMB 6.64 billion by the end of the third quarter of 2025, hitting the “ceiling” compared to the limited position capacity of the futures market [6]. To curb excessive speculation, the fund company had to set the daily subscription limit at RMB 100 and implemented multiple temporary suspension measures, but these risk control measures still failed to fully quell market speculation enthusiasm.

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Listed Open-Ended Funds (LOFs) feature a core dual-track operation mechanism of “two markets, two prices” [7]. Investors can subscribe to or redeem fund shares at NAV through over-the-counter channels (fund companies, banks, third-party platforms), or trade them in real time like stocks on the secondary market. This mechanism provides cross-market arbitrage space for professional investors: when the on-exchange price is significantly higher than the NAV (premium), they can obtain spread profits through “over-the-counter subscription - transfer custody - on-exchange sale”; the reverse operation applies when there is a discount.

However, the case of SDIC UBS Silver Futures LOF reveals the inherent flaws of this mechanism. First, cross-system transfer custody requires a T+2 or even longer settlement period, during which market fluctuations may completely erode the original arbitrage space [8]. Second, arbitrage operations involve multiple costs (including subscription fees, redemption fees, custody fees, etc.), which often significantly reduce actual profits. Third, when a large amount of arbitrage funds flood in simultaneously, the on-exchange supply will suddenly increase, which instead accelerates premium convergence, making late-entry arbitrageurs the “bag holders”.

SDIC UBS Silver Futures LOF has become the focus of this round of speculation due to a combination of multiple unique factors:

: As the only on-exchange public fund in China that mainly invests in silver futures, it has become a scarce target pursued by capital against the backdrop of rising precious metal prices [9]. This “one-of-a-kind” product positioning makes it impossible to suppress premiums by increasing supply.

: Due to the position limits set by futures exchanges on silver futures contracts, the fund’s scale is strictly restricted. To prevent excessive scale expansion, the fund company reduced the daily subscription limit to RMB 100 starting from December 2025, and even suspended subscriptions for Class C shares directly [10]. This measure, intended for risk control, unexpectedly led to an extreme shortage of over-the-counter share supply, with a large amount of capital flooding into on-exchange trading, further driving up on-exchange prices.

: Under normal circumstances, when an LOF has a high premium, institutional investors will increase on-exchange supply through arbitrage operations of “over-the-counter subscription - on-exchange sale” to suppress the premium. However, the RMB 100 subscription limit completely prevents institutional funds from participating in arbitrage, thus invalidating the arbitrage mechanism [11]. A public fund researcher pointed out: “For institutions to profit from arbitrage, they need large amounts of capital for batch operations, but the daily limit of RMB 100 per account completely invalidates the arbitrage mechanism.”

: Since September 2025, the main Shanghai silver futures contract has risen by more than 90% cumulatively, with a single-month increase of over 40% in December [12]. The huge profit-making effect has attracted a large number of retail investors, and some investors even blindly follow the trend of speculation without fully understanding the product mechanism. Strategies such as “Daily RMB 100 fixed investment in silver” have been widely spread on social platforms, misinterpreting the subscription limit as a “people-friendly low threshold”, further amplifying market enthusiasm.

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The SDIC UBS Silver Futures LOF event has sounded multiple alarm bells for investors. First and foremost:

. Historical experience shows that any abnormal premium decoupled from fund NAV will eventually revert to value, and losses during the reversion process are often borne by the last investors to enter [13]. Taking SDIC UBS Silver Futures LOF as an example, after the premium rate surged to 68.19% on December 24, 2025, it saw consecutive limit-downs just one day later, and the premium rate quickly converged to within 30% in a short period, with some arbitrage funds that failed to withdraw suffering heavy losses.

Second,

. Many investors are misled by “arbitrage tutorials” on social media, believing that there are risk-free profit opportunities. In fact, LOF arbitrage involves complex trading mechanisms, cost expenses, and time risks, and is essentially a high-risk speculative activity [14]. An industry insider vividly described: “Within the T+2 period, silver prices may fluctuate sharply, market sentiment may reverse, and the original arbitrage space may disappear instantly, even turning into a trap.”

Third,

. In this round of speculation, a large number of individual investors were exposed to LOF funds for the first time, and knew little about their dual mechanism of “on-exchange trading + over-the-counter subscription/redemption” [15]. They often only see short-term gains, while ignoring the complex operating logic and potential risks behind the product. As reported by Securities Times: “In this capital carnival surrounding high-premium LOFs, many individual investors are actually exposed to LOFs for the first time, and even start investing without fully understanding such products, which is rather blind and even dangerous.”

This event requires investors to re-examine their investment decision-making framework. Specifically, investors should establish the following key perceptions:

: Any abnormally high return is inevitably accompanied by corresponding risk exposure. SDIC UBS Silver Futures LOF rose by more than 83% cumulatively in one month, but this increase was the result of capital speculation, rather than a true reflection of fundamental value [16]. When market sentiment reverses, limit-downs will follow, and the decline is often proportional to the previous increase.

: LOF funds generally have insufficient liquidity, with most products having sluggish on-exchange transactions, and a small amount of capital can drive price fluctuations [17]. In the case of SDIC UBS Silver Futures LOF, once arbitrage funds fled collectively, the amount of orders sealed on the limit-down board once exceeded RMB 1 billion, leaving a large number of investors unable to sell successfully, fully demonstrating the lethality of the liquidity trap.

: The fund company’s consecutive release of premium risk warnings, the exchange’s implementation of key monitoring, and the regulator’s reminder to strictly identify abnormal trading activities—these are clear risk warning signals [18]. Investors should learn to interpret these signals instead of ignoring them as “routine matters”.

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: Investors should closely monitor changes in the premium rate of LOF funds. The formula for calculating the premium rate is: (On-exchange Price - Fund NAV) / Fund NAV × 100%. Vigilance should be raised when the premium rate exceeds 10%, and it is considered significantly overvalued when it exceeds 20% [19]. The case of SDIC UBS Silver Futures LOF shows that once the premium rate breaks through the extreme level of 50%, the risk of a pullback will rise sharply.

: Abnormal trading volume and turnover rate are often signals of capital speculation. For example, the single-day turnover rate of SDIC UBS Silver Futures LOF exceeded 20% on January 6, 2026, with the transaction value expanding to RMB 1.587 billion, and such trading enthusiasm is usually unsustainable [20]. Investors should remain vigilant against varieties with sudden volume surges.

: Investors should understand the product attributes of the target investment, including underlying assets, trading mechanisms, fee structures, scale limits, etc. For futures-based LOF products, special attention should be paid to policy changes such as position limits and margin ratio adjustments by futures exchanges [21]. The RMB 100 subscription limit of SDIC UBS Silver Futures LOF is precisely due to the constraint of futures position ceilings.

: When the discussion heat of a certain fund on social media rises abnormally and a large number of “arbitrage strategies” emerge, it often means that market sentiment is in an irrational state of euphoria [22]. At this time, investors should think contrarily and avoid following the crowd to enter the market.

: No matter how optimistic you are about a certain LOF fund, you should not bet all your capital on it. It is recommended to control the allocation ratio of a single LOF product within 5% of total assets, and maintain sufficient cash reserves to cope with emergencies [23].

: For LOF funds traded on the exchange, stop-loss points should be preset and strictly implemented. When the premium rate begins to converge and the price breaks through key support levels, it is wiser to exit decisively than to fantasize about a rebound. The price peak of SDIC UBS Silver Futures LOF before consecutive limit-downs was RMB 3.116, and it later fell to a low of RMB 2.804. If investors failed to stop losses in a timely manner, the losses would be very heavy [24].

: For commodity assets such as silver, if the investment purpose is long-term allocation rather than short-term arbitrage, it is recommended to prioritize over-the-counter fund products [25]. Over-the-counter funds are subscribed and redeemed at NAV, with no risk of premium fluctuations, and are not restricted by secondary market liquidity.

: Do not concentrate all capital on a single LOF product. You can consider diversified allocation through multiple channels such as gold ETFs, silver futures, physical silver, etc., to reduce the impact of price fluctuations of a single target on the overall portfolio.

: Timely follow official information such as fund company announcements, exchange notices, and regulator statements. SDIC UBS Fund issued a total of 18 premium risk warnings in December 2025, and the Shenzhen Stock Exchange implemented key monitoring on SDIC UBS Silver Futures LOF [26]—these signals should be taken seriously by investors.

For investors with certain professional capabilities, the following advanced strategies can be considered:

: The NAV changes of SDIC UBS Silver Futures LOF are highly correlated with silver futures prices. Investors should simultaneously track the price trends of benchmark contracts such as the main Shanghai silver futures contract and COMEX silver futures, to judge whether premium convergence is driven by capital behavior or fundamental changes [27].

: Futures funds need to perform regular roll operations (selling near-month contracts and buying far-month contracts). In a contango structure (where far-month contracts are more expensive than near-month contracts), each roll will incur a certain cost due to the premium, which will erode the long-term returns of the fund [28]. When evaluating futures-based LOF products, investors should take roll costs into consideration.

: The speculation of high-premium LOFs often follows a cycle of “speculation - mania - collapse - reversion”. If investors can identify different stages of the cycle, they can participate moderately in the early stage of bubble formation, but must exit after the mania period [29]. However, this strategy has extremely high requirements for market timing ability, and is not recommended for ordinary investors.

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The SDIC UBS Silver Futures LOF event reflects some in-depth problems of LOF fund products. Since their birth in 2004, LOF funds have gone through more than 20 years of development, but have always faced the dilemma of “failing to grow and being marginalized” [30]. As of the end of 2025, there are only 407 LOF funds in the entire market, with a total scale far lower than that of on-exchange products such as ETFs.

The root cause of this dilemma lies in the inherent limitations of the LOF product mechanism. First, the T+2 transfer custody cycle greatly reduces arbitrage efficiency, which is far inferior to the real-time arbitrage mechanism of ETFs. Second, LOF funds generally have insufficient liquidity, with many products having daily transaction volumes of less than RMB 1 million, making it difficult to attract institutional investors. Third, LOF products have complex coordination issues between the on-exchange and over-the-counter markets, which easily lead to price deviations and arbitrage failures.

Industry insiders have put forward multiple suggestions for the future development direction of LOF funds [31]. First, focus on segmented tracks, and refine characteristic varieties such as commodities, cross-border products, and Fund of Funds (FOF) to give play to the unique advantages of LOF products. Second, optimize trading mechanisms, shorten transfer custody time, and introduce market makers to improve liquidity. Third, form a complementary relationship with ETFs rather than direct competition, and maintain a niche but stable market position.

As for SDIC UBS Silver Futures LOF, due to its non-replicability (other fund companies can no longer launch similar products), it will remain a scarce product in the foreseeable future [32]. However, investors should also realize that this scarcity is a double-edged sword—it may create speculation opportunities in the short term, but it will also cause greater losses when the bubble bursts due to the lack of substitutes.

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Through in-depth analysis of the high premium event of SDIC UBS Silver Futures LOF, we can draw the following core conclusions:

First,

. No matter how excellent the fundamentals of the underlying assets are, once the on-exchange price decouples from the NAV to an abnormal level, reversion is an inevitable outcome. The case of SDIC UBS Silver Futures LOF’s premium rate quickly converging from 68% has once again verified this market law.

Second,

. Factors such as the T+2 transfer custody cycle, cost expenses, and quota restrictions of LOF funds make traditional arbitrage strategies difficult to operate effectively. Investors should not regard arbitrage as a “risk-free” operation.

Third,

. A large number of individual investors entered the market blindly without fully understanding the product mechanism, which is an important cause of losses in this round. Improving financial literacy and making prudent decisions are compulsory courses for every investor.

Fourth,

. Measures such as the fund company’s intensive release of risk warnings and the exchange’s implementation of key monitoring have played a positive role in curbing excessive speculation and protecting investors’ interests.

Based on the above analysis, we put forward the following recommendations for investors:

Category of Recommendation	Specific Measures
Risk Perception	Fully understand the mechanism of LOF products, and recognize that high premiums are unsustainable
Position Management	Control the allocation ratio of a single LOF product within 5% of total assets
Monitoring Indicators	Closely monitor changes in premium rate, trading volume, and turnover rate
Stop-Loss Discipline	Preset stop-loss points and execute decisively
Information Acquisition	Attach importance to fund company announcements and regulatory signals
Allocation Strategy	Prioritize over-the-counter funds for long-term allocation

Finally, we emphasize again: Investment involves risks, and you should be cautious when entering the market. The SDIC UBS Silver Futures LOF event has provided all investors with a vivid risk education lesson. Only by deeply understanding risks and treating returns rationally can you achieve steady growth of wealth in an uncertain market.

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[1] Securities Times - LOF Funds Spark Another Premium Wave at the Start of 2026

[2] Sina Finance - Silver LOF Issues Risk Warnings for 6 Consecutive Days

[3] National Business Daily - Premium Wave Returns! LOF Funds Become the Target of Capital Speculation

[4] Securities Times - Arbitrage Funds Flee Collectively, Silver LOF Hits Limit-Down, Premium Plunges

[5] Sina Finance - Daily RMB 100 “Investment” in Silver Gains Popularity

[6] China Business Network - Investigation into the Premium Wave of Silver LOF

[7] East Money - “Arbitrage” of Silver LOF Funds Booms, Institutions Warn of Premium Risks

[8] Securities Times - Analysis of Collective Flight of Arbitrage Funds

[9] National Business Daily - Analysis of Product Scarcity

[10] Sina Finance - Analysis of the Impact of Subscription Limits

[11] China Business Network - Analysis of Arbitrage Mechanism Failure

[12] East Money - Review of Silver Market Trends

[13] Securities Times - Risk Warning of Premium Convergence

[14] East Money - Analysis of Arbitrage Risks

[15] Securities Times - Investor Perception Risks

[16] National Business Daily - Analysis of Market Performance

[17] Securities Times - Analysis of Liquidity Risks

[18] Securities Times - Analysis of Regulatory Measures

[19] East Money - Calculation and Monitoring of Premium Rate

[20] Sina Finance - Analysis of Transaction Data

[21] Sina Finance - Analysis of Product Characteristics

[22] National Business Daily - Analysis of Market Sentiment

[23] East Money - Investment Recommendations

[24] Securities Times - Analysis of Stop-Loss Cases

[25] China Business Network - Allocation Strategy Recommendations

[26] Securities Times - Regulatory Dynamics

[27] Sina Finance - Futures Market Linkage

[28] Securities Times - Analysis of Roll Costs

[29] East Money - Analysis of Sentiment Cycles

[30] National Business Daily - Development Dilemma of LOF Funds

[31] Securities Times - Future Outlook of LOF Funds

[32] Securities Times - Analysis of Product Scarcity