Guggenheim Plans Chinese Bond ETF

February 10, 2011


Guggenheim Funds, the Lisle, Ill.-based money management firm, filed paperwork with the Securities and Exchange Commission to market a Chinese yuan-denominated bond fund, which would make it the first bond ETF denominated in local currency to focus solely on Chinese debt.

The Guggenheim China Yuan Bond ETF will use a sampling strategy on a rules-based index comprising fixed-income securities issued by Chinese or non-Chinese companies, agencies and government. All bonds must be denominated in yuan and be eligible for investment by U.S. investors, the filing said. The index is rebalanced monthly.

In order to make the cut, the bonds must have a minimum of 250 million yuan in outstanding par value and a rating of BBB- or better, the filing said. While the portfolio construction does not stipulate a minimum term to maturity, it does cap the weighting of a single position at 10 percent of the basket.

Fixed-income ETFs focused on emerging markets, and denominating such funds in local currencies isn’t new either. But an ETF focused solely on Chinese bonds is. Van Eck Global and WisdomTree both have ETFs in the works that would tap into local-currency-denominated Asian issues including Chinese. However, both of the proposed funds would also hold debt from Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.

Last summer, both New-York based companies launched broad-based emerging markets bond funds denominated in local currencies that have been well received by investors. Van Eck’s Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) now has about $250 million in assets, while the WisdomTree Emerging Markets Local Debt (NYSEArca: ELD) has $630 million.

Global X is another New York-based fund provider that’s eyeing the emerging markets bond space. The company known for its focus on developing economies has recently requested permission to start marketing fixed-income funds.

Guggenheim Funds Investment Advisors will serve as investment advisor to the fund. The filing didn’t include the ticker or fees of the proposed Guggenheim China Yuan Bond ETF.


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