LOF High Premium Frenzy: Gambling on Quicksand and Industry Reflection

Introduction

In mid-June 2025, a narrative about "wealth myth" quietly unfolded in the secondary market. Multiple listed open-ended funds (LOFs) under Caitong Fund hit consecutive limit-ups on the exchange, with premium rates soaring above 20%, drawing widespread market attention. On the surface, this is closely tied to fund manager Jin Zicai's bets on the AI computing power track and his stellar near-530% return over the past year. However, deep analysis reveals that the high premium is essentially capital gambling on extremely small circulating shares — some products require only tens of millions of yuan to push them to the limit. Although fund companies have imposed emergency purchase restrictions and trading halts, the amplification effect of social media may intensify speculative sentiment by "blocking the outside." Industry insiders warn that such high premiums, detached from fundamentals, are like "gambling on quicksand" — once sentiment recedes, investors face the dual risk of price regression and premium collapse.

The Collective Limit-Up Wave: Artificial Prosperity Driven by Tiny Caps

On June 18, three LOF products under Caitong Fund — Caitong Fusheng Multi-Strategy A, Caitong Multi-Strategy Select, and Caitong Multi-Strategy Furui A — all hit limit-ups on their exchange shares, with premiums reaching 14.4%, 22.96%, and 23.85% respectively. The day before, six Caitong LOF products had collectively hit limit-ups. Going back to June 16, Caitong Multi-Strategy Upgrade and Caitong Multi-Strategy Fuxiang both hit limit-ups, while Caitong Multi-Strategy Fuxin and Caitong Science and Technology Theme rose 9.72% and 8.81% respectively. Over several consecutive trading days, multiple Caitong LOF products hit limit-ups one after another, accumulating high premiums, almost dominating the LOF market gainers list. Such a dense collective rally is rare in the industry.

However, this seemingly prosperous scene is actually an artificial prosperity propped up by minimal liquidity. Looking at the exchange-traded shares of these funds, most have low liquidity, with small daily turnover, making them easy to be leveraged by capital. Some products require only tens of millions to hundreds of millions of yuan to push them to the limit.

For example, as of June 17, Caitong Fusheng Multi-Strategy A had only 1.299 million exchange-traded shares; Caitong Multi-Strategy Select, Caitong Multi-Strategy Furui A, and Caitong Multi-Strategy Fuxin had 4.0656 million, 2.0791 million, and 19.1597 million shares respectively. Correspondingly, on June 18, Caitong Multi-Strategy Furui A had a turnover of only 220,900 yuan, and Caitong Multi-Strategy Select had a turnover of just 750,200 yuan.

With such small size and liquidity, a small amount of capital can absorb sell orders and push prices to the limit. But the other side of the double-edged sword is: once capital withdraws, liquidity quickly dries up, and the premium loses support, leading to a potentially violent price regression toward net value. Therefore, such high premiums on LOFs often come with high risk.

Capital Dance on Tiny Circulating Shares

In reality, this round of LOF price increases stems from an imbalance of supply and demand for funds, completely detached from fund fundamentals. The secondary market trading price is far above the actual net asset value. The price, marked by market sentiment, is essentially a game on quicksand. Participants are no longer trading the fund itself but each other's expectations of "whether there are more people to take over." When sentiment fades, prices must return to net value, at which point investors face the dual pressure of a secondary market price drop and a premium bubble burst.

Fund companies are clearly aware of the risks. Caitong Fusheng Multi-Strategy A and Caitong Multi-Strategy Select have issued multiple premium risk warnings, while Caitong Multi-Strategy Fuxin and others have frequently halted trading and implemented purchase restrictions in early June to protect existing holders or control scale.

However, "blocking the outside" to some extent prevents the automatic correction mechanism for high premiums. Although intended to cool the market, in the age of social media, this move may be misinterpreted as a sign that the product is "a rare commodity," triggering even fiercer chasing. The game of passing the parcel continues, and risks accumulate quietly. Similar to the past experience with silver LOFs, curbing high premiums tests not only fund companies' management wisdom but also depends on market sentiment reversal and capital withdrawal. Ultimately, the investors left "standing guard" bear a heavier price than imagined.

Dual Nature of Performance Halo and Risk

The capital's choice to speculate on Caitong products was undoubtedly attracted by their stellar performance bathed in "light" this year. As of June 21, among the top ten funds by one-year return, Caitong Fund occupied six seats, all managed by the same fund manager — Jin Zicai. Notably, Caitong Multi-Strategy Fuxin, which recently drew attention for its high premium and high return, posted a one-year return of 529.09%, winning the market champion; Caitong Jingxin Quality Selection One-Year Hold A, Caitong Jingji Selection One-Year Hold A, Caitong Growth Preferred A, and Caitong Integrated Circuit Industry A all had one-year returns over 470%, sweeping the second to fifth places; additionally, Caitong Value Momentum A managed by him had a one-year return of 407.75%, ranking 8th in the market.

"When the time comes, heaven and earth work together" — this may be the truest portrayal of Caitong Fund right now. In the industry, Jin Zicai's investment style is known for aggressiveness. As of the end of Q1, his managed products focused on the AI computing power chain, targeting leading companies in four sub-sectors: optical modules, PCB boards, communication equipment, and semiconductor equipment. For Caitong Multi-Strategy Fuxin, the top six holdings — Han's CNC, Zhongji Innolight, Shengyi Technology, Eoptolink, Dingtai High-Tech, Yuanjie Technology — each account for over 9% of net value, with the top ten totaling over 86%. This "betting on one track" approach shows strong performance elasticity during the AI main rally.

But extreme style also means volatility costs. In the first five months of 2025, Caitong Multi-Strategy Fuxin once fell over 30%, ranking as the market's worst. In fact, Jin Zicai is a typical sector rotation player. Caitong Multi-Strategy Fuxin heavily weighted in live hog farming and power in 2022, shifted to media and tech in 2023, and from Q4 2023 began concentrating on computing power, increasing exposure since then.

With stellar performance, capital flooded in, and purchase restrictions followed. On June 2, Caitong Value Momentum A, Caitong Growth Preferred A, Caitong Integrated Circuit Industry A, and Caitong Quality Selection announced a daily single-account purchase limit of 1,000 yuan. The two unrestricted funds — Caitong Jingxin Quality Selection One-Year Hold A and Caitong Jingji Selection One-Year Hold A — are smaller and have lock-up periods, objectively limiting fast in-and-out capital.

Caitong Fund's performance explosion is not limited to Jin Zicai. During the same period, 12 other products under the company doubled their returns: Jia Yanan's Caitong Wisdom Growth and Caitong Balanced Preferred One-Year Hold had one-year returns of 295.75% and 171.28% respectively; Xia Qin's Caitong Multi-Strategy Fuxiang and Caitong Sustainable Development had returns of 256.42% and 255.18%; Tang Jiawei's Caitong Emerging Blue Chip and Caitong Carbon Neutrality One-Year Hold had returns of 225.47% and 105.39%; Shen Li's Caitong Domestic Demand Growth 12-Month Open, Caitong Multi-Strategy Upgrade, Caitong Jingqi Industry, and Caitong New Horizons had returns of 186.95%, 182.95%, 181.77%, and 178.79%; Yuan Zeqiang's Caitong Science and Technology Innovation and Caitong Science and Technology Theme had returns of 157.12% and 150.41%.

Industry Reflection and Investor Lessons

However, every coin has two sides. As the tech sector continues its one-sided rally, the market has never stopped discussing valuation bubbles. The lessons from the high-profile launches in 2021 followed by large drawdowns are still fresh. In this current rally, more fund companies are actively imposing purchase limits and controlling pace to prioritize holder interests. Behind this lies a deep industry recognition of "when times are good, everything works; when luck fades, heroes lose freedom." No practitioner wants to be left with both scale and holders in a difficult situation when the tide goes out.

From an investor perspective, this LOF high premium event offers several important lessons. First, there is a possibility of deviation between the exchange trading price of LOFs and fund net asset value, but large premiums are inevitably unsustainable. Investors should be cautious about buying LOF shares at prices far above net value; once sentiment reverses, the premium collapse can cause losses far exceeding net value decline. Second, products with minimal liquidity are inherently unsuitable as allocation targets for ordinary investors; their prices are easily manipulated and difficult to exit. Finally, chasing hot short-term sectors and star fund managers comes with the dual cost of volatility and liquidity premiums.

For fund companies, this event also exposes deep-seated issues in the design, operation, and risk management of LOF products. With very small scale, the pricing mechanism of LOFs is highly susceptible to interference, which is easily amplified in today's social media environment. Balancing the protection of holder interests and maintaining normal market operations tests fund companies' governance capabilities. Compared to simple and drastic "purchase limits and trading halts," more refined liquidity management and transparent information communication mechanisms may be the fundamental solutions to high premiums.

Conclusion: Returning to Common Sense Investment Philosophy

The LOF high premium frenzy is essentially a price game driven by tiny circulating shares, extreme performance, and social media amplification. When market participants are attracted by the short-term gains of "one limit-up per day," they often ignore the iron law that prices will eventually return to net value. Caitong Fund's Jin Zicai team won a phase victory with their aggressive bets on AI computing power, but that doesn't mean their strategy is universally applicable; LOF's limit-up trading may seem tempting but hides liquidity traps.

Staying sober in market frenzy and sticking to common sense amidst the noise may be the fundamental way for investors to survive cycles. After all, the value of all financial assets ultimately returns to their fundamentals, and the price castles built on quicksand can hardly withstand the test of time.