Daily ETF Watch: New China Bond Fund

Market Vectors, the company behind the ETF market’s first China-A shares equity fund, today is launching a bond fund focused on "RMB bonds" that are issued and traded in the interbank market in mainland China, making this ETF the first of its kind issued in the U.S. market.

The Market Vectors ChinaAMC China Bond ETF (CBON), which comes with a net annual expense ratio of 50 basis points, or $50 for each $10,000 invested, will have its primary listing on NYSE Arca, according to the ETF’s latest updated prospectus.

Like the A-shares market, which focuses on the huge and liquid market for equities that trade on mainland China exchanges in Shanghai and Shenzhen, the RMB bond market also focuses on the huge mainland-China investment market, but through the lens of fixed income.

The launch of “CBON” marks the latest step forward in foreign-investor access to China, the world’s No. 2 economy. In the past year, the ETF market deepened with the launch of physical A-shares funds and the first all-China fund that includes all the different classes of Chinese equities. Fuller access to China is crucial to investors who want globally diversified portfolios.

Index Characteristics

The ChinaBond China High Quality Bond Index comprises fixed-rate, renminbi (RMB)-denominated bonds issued in the People’s Republic of China (PRC) by Chinese credit, governmental or quasi-governmental issuers, the prospectus said.

Chinese credit issuers are generally considered to be issuers of central enterprise bonds, local enterprise bonds, medium-term notes, corporate bonds and railway debt. Credit RMB bonds must have at least one AAA rating by one of the Chinese local rating agencies recognized by the relevant authorities in the PRC to be included in the Index.

RMB Bonds are traded on the inter-bank bond market or the exchange-traded bond market in the PRC. Currently, the interbank bond market is much larger with respect to trading volume and is generally considered more liquid than the exchange-traded bond market.

China currently has three policy banks, which are state-owned banks responsible for financing economic and trade development and state-invested projects.

As of Sept. 30, 2014, the index comprises 1,446 bonds of 244 issuers. The index is compiled and calculated by the China Central Depository & Clearing Co., Ltd, the prospectus said.