The default bond play to get broad-based exposure might be the iShares Core US Aggregate Bond ETF (NYSEArca: AGG), which tracks the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index. The AGG gives bond investors general exposure to the fixed income markets, but there are times when current market conditions warrant a deconstruction of the AGG to extract maximum investor benefit.

“While investors spend a lot of time thinking about fund selection, asset-allocation decisions can have a much bigger impact on performance,” wrote Alex Bryan of Morningstar. “Consider a portfolio with a 40% allocation to U.S. stocks, 20% to international stocks, and 40% to U.S. investment-grade bonds.”

With that being said, as more investors begin to add fixed income to their portfolios, it will take more of a strategic bent. As the U.S. capital markets make their way out of the late cycle, it can be opportunities overseas that can be more attractive alternatives.

Chinese bonds made their debut on the Bloomberg Barclays Global Aggregate Index on Monday–a move that would give investors more access to China’s $13 trillion bond market. Markets analysts are expecting that this inclusion would garner a capital influx of $150 billion in foreign inflows.

Over the course of the next 20 months, these Chinese bonds will be added to the global index. Bonds that will be included in the index are the following:

  • Chinese government: 159
  • China Development Bank: 102
  • Agricultural Development Bank of China: 58
  • Export-Import Bank of China: 45

“Today marks an important milestone as China’s capital markets continue to find their place in the global investment mainstream,” said Justin Chan, HSBC’s co-head of global markets in Asia Pacific.

China is becoming less resistant to safeguarding its businesses, which will open the pathways to more foreign investment. China ETFs have also been the beneficiaries of index provider MSCI Inc. announcing recently that it would quadruple its weighting of large-cap Chinese shares in its benchmark indexes.

In the video below, Deutsche Bank’s Co-Head of Institutional Client Group David Beale discusses the inclusion of  China’s USD 12 trillion Renminbi bond market in the Bloomberg Barclays Global Aggregate Bond index in this Asia Takeaway.

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