ETF Watch: KraneShares Plans China Bond Fund

May 12, 2017

KraneShares has filed for an ETF offering broad access to China’s fixed-income markets. The KraneShares Bloomberg Barclays China Aggregate Bond Index ETF will target mainland China securities denominated in renminbi.

According to the prospectus, the underlying index’s constituents will include fixed-interest-rate debt issues from government or government-related entities and corporations whose securities are available through the China Interbank Bond Market.

The index is weighted by market value, but applies 25% caps to two different areas of China’s renminbi bond market: bonds issued by the People’s Republic of China and bonds issued by China’s three policy banks.

Eligibility for inclusion requires that a bond not be in default and have at least one year of remaining maturity. Bonds issued by China’s Ministry of Finance are excluded from the index, while eligible bonds must meet certain size requirements. Those issued by the government and government-related entities must have a minimum par value of RMB 5 billion, while corporate-issued bonds must have a minimum par value of RMB 1.5 billion, the prospectus said.

Government-Award Permits

Like other ETFs offering direct exposure to mainland China’s securities markets, the fund will have government-awarded permits giving it access.

There are currently three ETFs offering exposure to China’s bond markets, but the most similar existing fund is the VanEck Vectors ChinaAMC China Bond ETF (CBON), which also tracks renminbi-denominated bonds. CBON has just $6.6 million in assets under management and comes with an expense ratio of 0.50%. It launched in November 2014.

The filing did not include a ticker or expense ratio, but it did indicate the ETF is set to list on the NYSE Arca.

Contact Heather Bell at [email protected].

 

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