Double Barrel Yuan Bond ETF Launches
September 22nd, 2011 at 5:30pm by Tom Lydon
Guggenheim Investments launched the first Chinese bond exchange traded fund denominated in the local currencies on Thursday. Invesco PowerShares unveiled its new ETF offering that will provide investors access to the yuan-denominated debt market, as well.
According to regulatory filings, the Guggenheim Yuan Bond ETF (NYSEArca: RMB) will utilize a sampling strategy on rules-based index that holds fixed-income securities issued by Chinese or non-Chinese companies, agencies and the government. Bonds held by RMB are denominated in renminbi. The bonds need to have a 250 million yuan value and a rating of BBB- or better. The fund has an expense ratio of 0.65%.
In a telephone interview, David Botset, senior V.P. of product development at Guggenheim, emphasized that the RMB ETF is based on the AlphaShares China Yuan Bond Index and includes investment grade issues. Botset also pointed out that they will be working directly with Hong Kong traders and managers to help provide U.S. investors with direct exposure to the Chinese currency market.
According to PowerShares, the PowerShares Chinese Yuan Dim Sum Bond Portfolio (NYSEArca: DSUM) will begin trading on Friday, September 23. The fund will provide exposure to Chinese yuan-denominated “Dim Sum” bonds that are issued and settled outside of China and will issue monthly distributions.
DSUM has an expense ratio of 0.45%.
“The Dim Sum bond market offers attractive coupons, and the ability to participate in the appreciation potential of the yuan over time,” Ben Fulton, Invesco PowerShares managing director of global ETFs, commented. “We believe the PowerShares Chinese Yuan Dim Sum Bond Portfolio provides investors with both convenient, and low cost access to the yuan-denominated debt market.”
The Dim Sum bond market was first introduced in 2007 when the People’s Republic of China’s financial institutions were first allowed to issue yuan-denominated bonds offshore. The market has seen rapid growth, especially after its deregulation in July 2010.
The fund is subject to currency risk. The net asset value may drop if the yuan currency depreciates against the U.S. dollar. Additionally, if the renminbi, which is traded on the mainland, and the yuan, which is traded off-shore – also known as “CNH” in Hong Kong, diverge in value, the disparity between the currencies could negatively impact the ETF.
For more information on new launches, visit our new ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.