Core Insights - The disparity in returns between mainland QDII funds and Hong Kong ETFs is significant, with QDII funds underperforming by 1.14% compared to 3.03% for Hong Kong counterparts tracking the same index [1][2] - Over a full year, QDII ETFs typically lag behind Hong Kong ETFs by 1.2% to 1.8%, leading to a compounded difference of 15% over ten years [2] Exchange Rate Issues - QDII funds face challenges due to the "T+1" exchange rate mechanism, which incurs costs and delays compared to Hong Kong ETFs that can trade directly in local currencies [3] - The inability to hedge effectively against currency fluctuations results in significant losses, with unhedged portions reducing returns by 2.2% this year alone [3] Cash Management - QDII funds must maintain 2% to 5% in cash reserves to prevent liquidity issues, which limits their ability to fully capitalize on market gains [4] - This cash drag results in a negative tracking error, further diminishing returns compared to fully invested Hong Kong ETFs [4] Premium and Pricing Issues - QDII funds are subject to hard caps on foreign exchange quotas, leading to situations where demand exceeds supply, causing significant premiums on fund shares [5] - Premiums can lead to substantial losses for investors if the premium converges to zero, as seen with various ETFs [5] Hidden Costs - While management fees for QDII funds appear lower, the cumulative impact of exchange rate issues, cash drag, and premium losses results in an effective annual cost increase of 1.2% to 1.5% for QDII holders [6] - This hidden cost can lead to significant losses over time, emphasizing the importance of understanding the full cost structure of these investment vehicles [6]