Analysts warned investors may start to trim positions on some closed-end funds after the current round of rally eases if the growth clip of their net value can't catch up with that of their traded prices.

China's Shanghai Stock Exchange Fund Index, which tracks 50-odd closed-end funds, jumped 148.8 percent last year, against a 130.4 percent climb on the benchmark Shanghai Composite Index. But the net value of these funds only added 106.1 percent in 2006, compared with a 130.5 percent rise in that of open-end equity-invested funds, according to Lipper, a fund research unit under Reuters.

"Although closed-end funds brought investors hefty returns last year, that couldn't cover up their weakness in shoring up the net value," said Zhou Liang, a Lipper research manager. "I believe that (the slower rise) has shown up that fund firms didn't pay enough attention to the management of closed-end products."

China started its fund industry in 1998 with closed-end funds, which have a fixed number of units sold to investors and can be traded like common stocks. But since 2001, the market has largely shifted to open-end funds, which are designed to pool client capital periodically but don't trade by themselves.

The closed-end funds are traded at a discount to their net-asset value after four years' of stock market slumps as their prices could fluctuate independently based on demand and supply. But the difference has narrowed to less than 20 percent by the end of last year from 37 percent in early July thanks to an across-the-board share rally.

"The frenzy over closed-end funds may continue in the first quarter of the year due to the difference between their prices and net value," said He Xinhong, a Guohai Securities Co trader. "But if fund ventures don't beef up management and closed-end funds are not allowed to invest more in stocks, the tally isn't likely to hold through the year."

China's closed-end funds are now allowed to invest 80 percent of assets under management in stocks, compared with a limit of 95 percent for most open-end products. Some market watchers said the separate stock-investment limits have partly been blamed for the different pace of growth of net value in open-end and closed-end products.

Industry sources have said regulators were considering a plan to let closed-end funds also invest up to 95 percent of their assets in stocks to level the playing field. Many believe the move could be stepped up as more closed-end funds are set to convert into open-end ones upon expiration.

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