Graded Fund B***1000 shares, if the price of B is 2.5 when the discount is raised, and the net value of B is 2.1, how many B shares and mother funds will there be after the discount, and how much will be lost? Let me send you a short article, this can explain the problem

The change in the premium of Military Industry B after the discount

Is it a loss or a profit?

Let’s look at the arbitrage opportunities of rich countries’ military industry classification discounts. Wells Fargo Military Industry Graded Fund, the full name of Wells Fargo CSI Military Industry Index Graded Fund, according to the terms of the prospectus, when the net value of the parent fund unit reaches 1.5 yuan, the graded fund will be converted upward from time to time. The net values ??of the three types of share units of the Fund of Funds, Class A, and Class B are normalized. A and B shares still maintain a ratio of 1:1, and excess net value shares are converted into shares of the Fund of Funds.

On October 8, the net unit value of Wells Fargo Military Industry Graded Fund reached 1.514 yuan, officially triggering an upward discount; after the close of the day, the unit net value and market price of Military Industry B were 1.998 yuan and 2.139 yuan respectively. On October 9, the Wells Fargo Military Industry Grading Fund issued a discount announcement. The net values ??of the Wells Fargo Military Industry Grading Fund's parent fund, Military Industry A, and Military Industry B units were returned to 1. The shares of Military Industry A and Military Industry B remained unchanged, and excess assets were converted into shares of the Fund of Funds. Due to conversion, trading of Military Industry A and Military Industry B was suspended for one day on the 10th, and trading resumed at 10:30 on the 13th.

Take Wells Fargo Fund as an example. If an investor holds 10,000 shares of Wells Fargo Military Graded Fund of Funds, 10,000 shares of Military Industry A, and 10,000 shares of Military Industry B before conversion, the net values ??(assumed) of each share unit before conversion are respectively They are 1.5 yuan, 1.028 yuan, and 1.972 yuan.

After conversion, the net value of the three types of share units is returned to 1, and the shares held by Wells Fargo Military Graded FOF share investors will become 150,000 shares of the FOF; investors of Military Industry A will hold 10,000 shares of Military Industry A and 280 funds of funds; investors of Military Industry B will hold 10,000 shares of Military Industry B and 9,720 funds of funds.

After the upper discount is triggered, the leverage multiple of Military Industry B's net worth will return to the initial 2 times from about 1.5 times before the discount. Due to the change in the leverage multiple, there will be a change in the premium rate. However, it must be considered that there will be nearly If half of the shares are converted into FOF shares, they can probably only be exited at net value, and the original premium will disappear; while only half of the shares can enjoy a higher premium.

In the few trading days before the conversion may occur, if it is calculated that the income brought by the share premium rate of the leveraged index base after conversion is higher than the loss converted into the disappearance of the share premium of the parent fund, then It is a good time to deploy military industry B, otherwise it is a time to sell. Data shows that on September 30 and October 8, the premium rates of Military Industry B were 5.47% and 7% respectively; this is lower than the comparable premium rate of SW Military Industry of about 9%. SW Military Industry’s net worth leverage multiple is About 1.7 times. However, after the announcement of the discount, the premium rate of Military Industry B reached 9.58% after the market closed on October 9.

Using SW Military Industry as the reference system, the premium rate of Military Industry B after the discount should be 10% and above. Referring to the current actual annualized income of Class A, the premium rate of Military Industry B after the discount is expected to be About 12%. Regardless of the fluctuations in the military industry index and market sentiment, we can calculate the appropriate premium rate before the discount.

According to the assumed net value of Military Industry B before conversion of 1.972 yuan, after conversion of 10,000 shares of Military Industry B, there are 10,000 shares of Military Industry B with a net unit value of 1 yuan and 9,720 shares of the Fund of Funds with a net unit value of 1 yuan. This means that the theoretical value of Military Industry B held by investors before the discount is 10,000*1.12 (premium rate 12%) yuan + 9,720*1 yuan (the parent fund redeems it at its net value, without considering the redemption rate ), worth 20,920 yuan. The post-discount value of 20,920 yuan is equivalent to the market price of 10,000 military B units before discount being 2.092 yuan, divided by the net value of the unit of 1.972 yuan, resulting in a premium rate of 6.09%.

According to the above calculations, excluding the impact of market rise, only investors who bought Military B on September 30 can obtain the arbitrage opportunities brought about by changes in the premium rate; October 8 and October 9 Investors who buy at the closing price will bear the loss of converting part of their shares into a fund of funds and causing the premium to disappear.