PowerShares Eyes Chinese-Bond ETF

July 11, 2011

PowerShares becomes the second firm in a week to unveil plans for a Chinese bond ETF.

Invesco Powershares filed paperwork with U.S. regulators to market an Asian bond fund that would be focused on Chinese debt, the latest move by a fund sponsor to slice and dice Asian bond markets to vie for investor dollars

The PowerShares Asia Pacific Bond Portfolio filing comes just days after WisdomTree took similar steps to market an actively managed Chinese bond ETF. Also, San Francisco-based ETSpreads put a Chinese bond fund into registration in May.

While there aren’t any local-currency Chinese debt ETFs yet available on the market, investor appetite for locally denominated, emerging market, debt is growing. WisdomTree should know. Its WisdomTree’s Emerging Markets Local Debt Fund (NYSEArca: ELD) has gathered more than $900 million in less than a year, and its Asian counterpart, (NYSEArca: ALD), has hauled in almost $500 million since 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.

The PowerShares fund will allocate most of its portfolio to Chinese yuan-denominated bonds that have a fixed-coupon rate, a minimum maturity of one year and a minimum size outstanding of 1 billion yuan, the filing said. The mix might consist of everything from government to corporate to junk bonds.

The new ETF would join PowerShares’ Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY), though PCY is dollar-denominated.

The company didn’t specify a ticker, fees or even which index it will seek to replicate. But it did say it will do so through a representative sampling strategy, meaning it won't own all the securities in the fund's underlying index.

 

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