Capital preservation fund: safer assets

This course is reproduced from Morningstar and has been partially revised by Futu.

What is capital preservation fund? This is a topic that many domestic investors pay close attention to recently. We will introduce it mainly in the light of the situation of the overseas capital preservation fund.

The most important feature of the capital preservation fund is that its prospectus clearly stipulates the relevant guarantee terms, that is, to provide investors with the protection of principal or income after meeting a certain holding period.

Over the past few years, as global interest rates have fallen sharply and major stock markets have underperformed, foreign investors have begun to focus on the safety of assets rather than frenzied pursuit of high risks and high returns. As a result, the capital preservation fund has attracted the attention of many investors, the United States, Hong Kong and other mature markets have seen a large number of capital inflows into the capital preservation fund.

Overseas capital preservation funds take various forms. Among them, the guarantee provided by the fund includes principal guarantee, income guarantee and dividend guarantee, and the specific proportion is determined by the fund company itself.

The general principal guarantee ratio is 100%, but there are also cases where it is less than 100% or higher than 100%. For example, the principal guarantee ratio of the Hong Kong Cyber balance guarantee Fund 112 is 112%, while the principal guarantee ratio of the Hang Seng 90% Hong Kong Equity Fund is 90%.

As to whether to provide income guarantee and dividend guarantee, the situation of each fund is different. Usually, the capital preservation fund has a guarantor, which provides investors with the guarantee of principal and income after maturity.

Therefore, for investors who value the safety of assets, the capital preservation fund does have a strong attraction. In addition, attention should be paid to the following.

First of all, the capital preservation fund has a capital preservation cycle.Compared with domestic funds, the capital preservation cycle of overseas funds is longer. In the United States, the average capital preservation cycle is seven years. In Hong Kong, the capital preservation cycle in previous years is about 4-5 years. Recently, the capital preservation cycle of many capital preservation funds has been as long as 10 years, but with the opportunity of redemption at the end of 4 or 5 years.

Usually investors must buy funds within a short period of time and do not have the right to guarantee commitments before the expiration date of the capital preservation cycle. If investors are in urgent need of funds before the expiration date and have to withdraw the investment of the capital preservation fund, their principal and income will not be guaranteed; if the market is not good at that time, early redemption may cause losses. Of course, this may not happen, but investors need to think carefully.

Secondly, the nature of "capital preservation" limits the rising space of fund income to a certain extent.The investment of capital preservation fund is usually divided into two parts: capital preservation assets and income assets.

Overseas, in order to realize the capital preservation assets of the maturity guarantee amount, "negative investment" is adopted, usually invested in government bonds such as zero-coupon bonds, bonds with higher credit rating or large certificates of deposit, which is equivalent to the capital preservation cycle in the maturity period, the amount due is the capital preservation amount. Income assets are "actively invested", investing in stocks or options, futures and other financial derivatives.

Because of the high proportion of bonds in the capital preservation fund, there is a certain limit to the room for income to rise. The larger the capital preservation part is, the smaller the proportion of active investment is, and the smaller the room for additional income is.

Finally, the cost of the capital preservation fund should be carefully examined.Among them, we need to pay more attention to whether the guarantee fee paid to the guarantor is paid by the fund assets or by the fund manager himself.