WisdomTree Outlines China Bond ETF

July 05, 2011

WisdomTree, the publicly traded New York-based ETF firm, filed paperwork with U.S. regulators to market an actively managed Chinese bond fund, opening yet another door to U.S. investors seeking to play China’s economic story.

Local-currency denominated bond funds are relatively new in the world of ETFs, and WisdomTree has been a leader in developing the markets. The company’s China debt ETF could end up being the first to hone in on Chinese debt alone. San Francisco-based ETSpreads also has a Chinese bond fund in registration, but there aren’t any local-currency Chinese debt ETFs available on the market today.

The company has already demonstrated that investors are ready for locally denominated debt funds. The WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD) has gathered nearly $900 million in assets in less than a year; and a counterpart focused on Asia (NYSEArca: ALD), has gathered $476 million since its inception in March.

Van Eck’s Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC), has also gathered more than $420 million in less than a year, and is another example of growing investor appetite for diversified exposure within the emerging markets. Invesco PowerShares’ Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY) is another growing fund, but PCY is dollar-denominated.

Sovereigns And Corporates

The WisdomTree China Local Debt Fund will invest in yuan-denominated government and corporate debt as well as in derivative instruments and it might even include inflation-linked fixed income securities and money market instruments, the company said in the filing.

“The decision to secure exposure through direct investment in bonds or indirectly through derivative transactions will be a function of, among other things, market accessibility, credit exposure, tax ramifications and regulatory requirements applicable to U.S. investment companies,” the company said in the filing.

While both investment and non-investment grade bonds will be included, most of the portfolio will be allocated to securities issued in Hong Kong, the filing said. What’s more, in an effort to limit interest rate risk, the portfolio will have an aggregate duration of two to eight year. The longer the duration, the more sensitive the fund is to interest rate changes.

No ticker or fees were disclosed in the filing.



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