What Are the Different Types of Leveraged Funds?

A leveraged fund is a type of hedge fund. Domestic leveraged funds belong to the leveraged share of tiered funds (also called aggressive shares). A tiered fund refers to a fund type in which a fund's income or net assets are decomposed to form a two-level (or multi-level) risk-reward performance with a certain difference in fund shares under a portfolio. Its main feature is to divide the fund products into two types of shares and give different income distributions. Tiered funds are generally divided into two types of shares: a low-risk return-end (appointed return share) sub-fund and a high-risk return-end (leverage share) sub-fund. Taking a graded fund product X (X is called the parent fund) as an example, it is divided into A shares (agreed income shares) and B shares (leverage shares). A shares have a certain rate of return. All remaining assets after accrued income are classified as B shares, and losses are borne by the B share holders up to the net asset value of the B shares. When the overall net value of X declines, the net value of B shares preferentially falls; correspondingly, when the overall net value of X rises, the net value of B shares will also increase preferentially relative to A shares. The A share can generally obtain priority distribution benchmark income, the B share maximizes compensation for the principal and benchmark income of the priority share, and the B share usually participates in the distribution of residual income to a greater extent or assumes losses to obtain a certain amount of leverage. It has a more complex internal capital structure, and its non-linear return characteristics make it an implicit option.

Leveraged fund

Most of these funds are Class B shares of tiered index funds, and a few equity-type B leveraged sub-funds are not linked to the index (such as Jianxin Aggressive 150037, Yinhua Ruixiang 150048, and Consumer Aggressive 150050). Such foundations follow the index they track to zoom in on multiples.

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ETF Leverage Fund ETF Arbitrage

Discount arbitrage: For example, when the Yinhuashen 100 grading fund was discounted as a whole, it bought Yinhua Wenjin (150018) and Yinhua Ruijin (150019) at the same share ratio, and sold the original (or short selling). The equivalent value is deep 100ETF (159901). Then merged Yinhua Wenjin and Yinhua Ruijin into Yinhua Shenzhen 100 Fund to redeem, and bought Shenzhen 100 ETF (repayment of bonds). Premium arbitrage: For example, the overall premium of the market share of Shenwan Lingxin SME Board (163111) or E Fund's SME Board (161118), first purchase a certain amount of the above-mentioned parent funds in the market, and at the same time, sell equities and other small and medium board ETFs (159902) . Then the mother fund is split into small and medium board A (150085), small and medium board B (150086) or easy base stable (150106) and easy base aggressive (150107), sell the sub-fund shares, and buy small and medium board repayment bonds.

Leverage Fund Conversion Arbitrage

The prerequisites for this type of arbitrage are: 1) discounted trading because the agreed rate of return of the Class A Sub-Fund is lower than the yield of the market bond; 2) the Class B Sub-Fund triggers irregular conversion terms when the net value falls to a certain value; 3) The fall of the mother fund from the downward conversion point is less than 10%, and the index tracked by the mother fund in the market environment will most likely fall by more than 10%. When the conditions are met, you can choose to buy a Type A sub-fund, or buy and subscribe the parent fund for splitting, sell the Type B sub-fund, and keep the Type A sub-fund. Wait for the net value of the Class B sub-fund to fall to trigger irregular conversions and receive a conversion bonus. If the broader market rebounds, there is also the risk of unsuccessful arbitrage.