Huabao Oil & Gas LOF valuation and arbitrage error are difficult to resolve

Huabao Oil & Gas LOF Valuation and Arbitrage Errors Are Difficult to Resolve

Many friends have recently noticed that Huabao Oil & Gas’s real-time valuation on Jishi Lu is no longer available, and they are asking how to value and arbitrage. Today, I will systematically explain Huabao Oil & Gas’s arbitrage logic, net asset value rules, sources of valuation errors, and how to minimize these errors.

First, Huabao Oil & Gas is a QDII fund. Purchases are made on T day, and shares are only available for sale on T+3 days.

For example, if you buy on Monday, you can only sell on Thursday.

The key issue is: you cannot see the net asset value (NAV) on the purchase day.

NAV is only announced after 17:00–18:00 on T+1.

By the time you see the NAV, the day’s transactions are already completed and cannot be changed.

Can intraday valuation be referenced?

In theory, after 4 pm on trading days, US stocks have pre-market indices and prices, which can be roughly used to estimate NAV.

But this time is already past the 15:00 close of A-shares. Even if you estimate NAV then, you cannot place orders anymore, making it almost useless for that day’s operations, and the error margin is large.

Why is the error so big?

Huabao Oil & Gas tracks the S&P Oil & Gas Upstream Index (SPSIOP), investing in a basket of US oil and gas companies.

The only publicly visible holdings are the top ten stocks, which account for about 25%, and the fund rebalances quarterly.

Holdings as of Q4 2025 (October–December):

Top ten holdings (NAV percentage):

1. Venture Global Inc (2.91%)

2. ExxonMobil (2.61%)

3. Chevron (2.61%)

4. Gulfport Energy (2.60%)

5. Western Oil (2.55%)

6. Coterra Energy (2.52%)

7. ConocoPhillips (2.51%)

8. Texas Pacific Land (2.50%)

9. Devon Energy (2.47%)

10. Magnolia Oil & Gas (2.47%)

Key features: The top ten combined account for about 23.24%–29.2%, with individual stocks ranging from 2.47% to 2.91%, and holdings are extremely dispersed.

Holdings as of Q3 2025 (July–September):

Top ten holdings (NAV percentage):

1. CNX Resources (2.70%)

2. EQT Corporation (2.62%)

3. Murphy Oil (2.61%)

4. Marathon Oil (2.61%)

5. APA Corp (2.57%)

6. Phillips 66 (~2.5%)

7. Devon Energy (~2.5%)

8. Coterra Energy (~2.5%)

9. Western Oil (~2.5%)

10. ConocoPhillips (~2.5%)

Key features: The top ten account for about 23.7%, with individual stocks stable between 2.57% and 2.70%, showing significant differences from Q4 holdings.

Holdings as of Q2 2025 (April–June):

Top ten holdings (NAV percentage):

1. EQT Corporation (3.03%)

2. HF Sinclair (2.99%)

3. CNX Resources (2.95%)

4. Expand Energy (2.93%)

5. Range Resources (2.90%)

6. Antero Resources (2.88%)

7. Marathon Oil (2.83%)

8. Valero Energy (2.82%)

9. EOG Resources (2.80%)

10. Chevron (2.78%)

Key features: The top ten account for 28%–29.2%, with individual stocks increasing to 2.78%–3.03%, including new shale oil companies like Expand Energy and Ovintiv. The holding structure differs markedly from Q3 and Q4.

Core rules of holding changes:

1. Very low and dispersed weights: individual stocks maintain 2.5%–3% over the long term; the top ten combined only account for 23%–29%, far below traditional funds, making it impossible to anchor valuation based on heavy holdings.

2. Frequent quarterly rotation: the list of top holdings and their proportions change significantly each quarter (e.g., Q2’s EQT and Expand Energy, Q3’s CNX Resources and Murphy Oil, Q4’s Venture Global), making it difficult to build a stable “historical holding portfolio.”

3. Wide coverage: besides the top ten, the fund holds dozens of US oil and gas stocks, totaling over 60 positions, making comprehensive cost analysis very high.

4. Tracking index characteristics: the index tracked is a stock index, not a single futures or asset, so holdings change in real-time with index component adjustments, without fixed weights.

In summary:

• You cannot see the full holdings

• You cannot see the exact weights of each stock

• Holdings are constantly changing

Therefore, estimating NAV based on the top ten holdings is inherently inaccurate.

Some might think: “Pull out all stocks the fund has held over the past year and create a portfolio to estimate NAV?”

This is of limited value.

Because you still don’t know real-time weights, and by the time you estimate, the market has closed. It’s better to wait for the official NAV the next evening.

What can we do?

My approach is: try to minimize errors at least one day in advance.

On T day purchase, aim to estimate a NAV with minimal error by the next morning (T+1, before 9 am).

This way, you’re ahead of the official 4 pm NAV release, giving you a one-day lead to guide your operations.

Specific method:

• Take all stocks that have appeared in Huabao Oil & Gas’s historical holdings over the past year, and create a simulated portfolio, roughly allocating about 2.5% to each stock.

• Before 9 am on T+1, use pre-market US stock data to estimate the NAV, then compare and calibrate against the official NAV released that evening.

If the error is controllable, this simulated portfolio has practical value.

Finally, a note:

Huabao Oil & Gas is hard to estimate because of dispersed holdings, many stocks, and dynamic adjustments.

In contrast, some oil futures-tracking QDII funds with a single underlying asset are much easier to value, with smaller errors.

This summarizes the core reasons why Huabao Oil & Gas valuation is difficult and error-prone, along with my own improvement approach for reference.