- UBS SDIC Fund Management Co. changed the valuation model for the UBS SDIC Silver Futures Fund LOF to track global futures prices, leading to a record drop in its net asset value.
- The change was made to “timely and fairly reflect the true value in assets” as the previous model could not fully reflect the fair value due to the 17% daily limit on the Shanghai Futures Exchange.
- The adjustment sparked an outcry among investors, who may incur an extra loss if they try to redeem the funds, with UBS SDIC stating that unadjusted valuation would be “against the principle of fairness”. UBS SDIC Fund Management Co. changed the valuation model for a $2.2 billion silver fund to more closely track global futures prices, triggering a record drop in its net asset value and outcry among investors already bruised by a precious metals slump. The UBS SDIC Silver Futures Fund LOF will be valued based on prices in silver futures on major global markets instead of those listed at the Shanghai Futures Exchange, according to statements from UBS SDIC. The change, which came into effect on Monday, led to a record 31.5% drop in the product’s net asset value. UBS SDIC, a joint venture between the Swiss bank and a unit of State Development and Investment Group Co., said in a statement that it strives “to timely and fairly reflect the true value in assets.” Last month’s rally in precious metals came to a halt on Friday when spot silver prices plunged more than 25%. Investors had been piling into commodities amid renewed concerns about geopolitical upheaval and threats to the US Federal Reserve’s independence. The LOF fund mainly invests in silver futures listed on the Shanghai bourse, which are bound by a 17% daily limit, while global futures markets have no price caps.
The drop marks one of the sharpest single-day declines for Chinese mutual funds. The adjustment came as silver futures on the Comex tumbled 32.7% in the prior two sessions as a frenzied rally, partly fueled by Chinese speculators, ground to a halt. It has also sparked an outcry on social media. Any investor who tried to redeem the funds late Monday would incur an extra loss with the revaluation.
UBS SDIC said the recent market upheaval, with global futures price declines far exceeding the 17% limit, meant the fund’s net asset value can’t fully and timely reflect the fair value in its underlying assets under the previous model, according to a statement on its public WeChat account. It will resume referencing the silver settlement prices in Shanghai for valuation once the underlying futures contracts “reflect the characteristics of active trading markets.” Unadjusted valuation would allow investors that redeem at an earlier time to exit at an inflated net asset value, and expose remaining investors to the risk of asset prices returning to their true value, which the firm said is “obviously against the principle of fairness.” After precious metals from gold to silver unraveled last week the Shanghai Futures Exchange on Monday urged member institutions to beef up risk management and to remind investors to participate rationally.