What does tiered funds mean?

What are tiered funds? What are the misunderstandings about tiered funds? How to operate tiered funds? Here I would like to share with you some information about tiered funds for your reference. .

Graded Funds

Many investors believe that the preferred shares of graded funds are the same as bank savings, which can not only ensure the safety of the principal, but also ensure a certain return. In fact, the preferential share of tiered funds in the domestic market is not a product with guaranteed income. For holders of preferred equity, the assets of active equity provide guarantee for the realization of benchmark returns and the safety of preferred equity principal. However, due to the many risks faced by the market, the distribution of benchmark returns and the protection of principal securities are uncertain. When the net asset value of activist stocks declines significantly, preferred stock investors may still face the risk of losing their investment.

The leverage mechanism of graded funds

When investing in graded funds, the word investors hear most is leverage. So, what is leverage? Take a hierarchical fund product X as an example. When the net value of its parent fund The amplitude is larger than that of Fund of Fund We call this active sharing feature the leverage mechanism of graded funds. Because aggressive stocks face greater risks of net worth fluctuations, they are only suitable for investors with higher risk tolerance.

What are the misunderstandings about tiered funds

1. It is believed that tiered funds are all high-risk. Classified funds are actually divided into A-shares with agreed returns and B-shares with leverage effects. A shares are less risky. Due to the imperfect development of my country's securities market, the China Securities Regulatory Commission only requires securities firms to sign a "Risk Disclosure Statement" when customers trade stock index futures, warrants, and GEM for risk disclosure. It does not require securities firms to prepare a "Risk Disclosure for Leveraged ETFs and Leveraged Fund Leverage Share Transactions" "Book" and does not require securities firms to educate investors and evaluate the risks of leveraged fund products. It just blindly restricted investors in the "Guidelines for Graded Funds" by requiring the purchase of 50,000 yuan threshold from parent funds on the market as a "lazy policy", but it did not restrict investors from trading Class B graded funds, which led to Yinhua Xinli's , Yinhua Xinrui, Resource B and other investors who do not understand the principles of graded funds have complained about the "high risk and fraud of graded funds" of fund companies. In fact, except for Class A (Shenwan Income, Yinhua h-share A) which does not have B-share discount guarantee, the risk of other sustainable Class A stocks is not higher than that of AAA credit bonds, or even the same as treasury bonds.

2. It is believed that all Class A graded funds have guaranteed capital and profit. In fact, according to the terms of the hierarchical fund contract, the agreed income, commonly known as "guaranteed interest", is generally converted into an equivalent value, and the parent company's fund can be guaranteed through redemption. For Class A graded funds with a term, the net "principal and interest" at maturity can be converted into the redemption of the parent company's fund. However, after conversion to the parent company's fund, the net value of the parent company's fund fluctuates, and the parent company's fund needs to be borne by the rise and fall during the transitional suspension period. Risks are not “guaranteed”. The locked principal and agreed returns of Class A funds can be sold 2-3 months before expiration. For Class A graded funds with agreed-upon sustainable returns, since they will exist forever, when Class A’s agreed-upon return rate is lower than the market bond return rate, there is principal discount transaction risk; when Class A’s agreed-upon return rate is higher than the market bond return rate, When trading at a premium, once a downward conversion occurs, 75% of the original excess value will be lost. If the Class B fund corresponding to the Class A fund does not have a downward conversion clause (Shenwan Income, Yinhua h-share A), there is a risk of "white slip" in the agreed return.

3. Sub-funds whose parent fund is a LOF graded fund are mistaken for closed-end funds. I mistakenly believe that single items of category A or category B should be discounted. In fact, the parent fund is a hierarchical fund of LOF, and the sub-funds are also considered open-end funds. However, the sub-funds are part of the parent fund, so the price of the sub-fund must comply with the base price of the class A sub-base, the ratio of class XA + the base price of class B, and the class XB Ratio = net value of the fund of funds. If share A is at a premium, share B is at a discount; otherwise, share A is at a discount and share B is at a premium. If the parent fund is a closed-end fund, or a semi-open-end semi-closed-end fund, then the sub-fund is considered a closed-end fund, such as Ruifu Enterprising, Huili A, Huili B, etc.

4. Mistakenly believe that there is a linear (proportional) relationship between the premium rate and the leverage ratio of Class B leveraged funds. In fact, for tiered funds, after the preferred shares and aggressive shares of the tiered funds are listed for trading, the difference between the agreed income of the Class A sub-fund and the market bond yield will cause the Class A sub-fund to trade at a discount or premium, due to the matching of shares of the open-end tiered funds. The conversion mechanism allows for overall discount and premium arbitrage. Then determine whether the Class B sub-fund is trading at a premium or discount. For example, A agrees to trade at a premium for real estate A, pharmaceutical A, and Jianxin 50A whose yields are higher than the market-recognized interest rates. Then the B shares corresponding to real estate B, pharmaceutical B, and Jianxin 50B will still trade at a discount even if the leverage ratio is higher.

How to operate graded funds

1. Pay attention to the leverage ratio. The ratio of robust parts to aggressive parts is 1:1 or 4:6. Graded funds are funds that use structured grading techniques. Through the decomposition of fund income or net assets, a fund variety with secondary (or multi-level) risk-return performance with certain differentiated fund shares is formed.

For example, the small and medium-sized board index grading fund of E Fund is divided into three types of stocks. Among them, the fund share ratio of small and medium-sized board A and small and medium-sized board B remains unchanged at 1:1 during the grading operation. They are all listed and traded. Pair conversion.

2. Pay attention to Class A interest rates. Currently, most of the stable stocks on the market are floating interest rate products, and the annual income is mostly 3% or 3.5% of the one-year bank interest for the same period. Data shows that among the three major index rating funds in recent years, the stable stocks of ICBC Shenzhen Stock Exchange 100 Index Rating and Penghua CSIA Resource Industry Rating have adopted floating interest rates, and the agreed yield may be lower than the benchmark interest rate in the future. The agreed return rate of E Fund Small and Medium Enterprise Board A is 7% of the fixed interest rate, and the agreed return rate is high. Because they are not affected by future interest rate changes, this type of stock will have an increasing relative advantage during the interest rate cut cycle and can be used as a substitute for time deposits or treasury bonds, making it more suitable for low-risk investors.

3. Pay attention to the conversion of stocks. The hierarchical funds currently on the market are generally designed to convert shares from time to time when the net value of the parent fund reaches 2 yuan or the progressive net value is less than 0.25 yuan (slightly different).

This conversion can maintain high-risk stock leverage within a certain range.