Van Eck will be competing with Guggenheim Investments and Invesco PowerShares in the Chinese yuan bond market, having launched its own “Dim Sum” bond exchange traded fund.
According to a Van Eck Global press release, the Market Vectors Renminbi Bond ETF (NYSEArca: CHLC) will provide exposure to the Chinese renminbi (RMB)-denominated bonds, also known as Dim sum bonds. The Chinese currency system is officially called the renminbi, and the yuan is the base unit of the renminbi. [Sampling the ‘Dim Sum’ Bond ETFs]
“The world is transitioning from a period of U.S. dollar dominance to an era of currency blocs that better reflect the dispersion of economic growth,” Jan van Eck, Principal at Van Eck Global, said. “Certainly, the renminbi will be one of those currency blocs and China has taken significant steps to internationalize the RMB over the past two years.”
The Chinese yuan has appreciated the most against the U.S. dollar among a majority of emerging market currencies over the last four years.
“Given China’s recent rapid economic growth, a market consensus has developed that the country’s currency is undervalued,” Adam Phillips, Managing Director of ETFs at Van Eck Globa, said. “We’re pleased to be launching this new ETF, which offers several advantages over Chinese currency funds that primarily use non-deliverable forward derivatives. CHLC will allow investors to gain exposure to high-quality RMB-denominated bonds, thereby providing the potential for investment income as well as currency appreciation, all through a transparent and cost efficient ETF.”
CHLC has an expense ratio of 0.39%. The fund will issue monthly dividend distributions and experience capital gains when applicable.
The ETF holds 45 bonds with average maturities of under three years and has an average coupon of 2.1%. CHLC holds around two-thirds of its basket in bonds with a BBB rating or higher. Corporate bonds make up 40% of the fund.
For more information on the yuan, visit our Chinese yuan category.
Max Chen contributed to this article.