Guggenheim Rolls Out China Bond ETF

September 22, 2011

Guggenheim starts ‘Dim Sum’ China bond ETF party, with a first-to-market offering.

(Updates with quotes from Burton Malkiel and information on Invesco PowerShares plans to launch China bond fund on Sept. 23)

Guggenheim Investments, the company that yesterday rebranded Rydex and CurrencyShares ETFs under its name, rolled out a yuan-denominated bond ETF, making it the U.S. ETF market’s first bond ETF denominated in local currency to focus solely on China-related debt.

The Guggenheim Yuan Bond ETF (NYSEArca: RMB) will use a sampling strategy on a rules-based index comprising fixed-income securities issued by Chinese or non-Chinese companies, agencies and government, according to paperwork the company filed with the Securities and Exchange Commission. The ETF comes with an annual expense ratio of 0.65 percent, the company said on its website.

RMB’s launch is the leading edge of a frenzy of fixed-income ETFs in the pipeline that are focused on China-related debt. Those companies include Van Eck Global, Invesco PowerShares, WisdomTree and ETSpreads. The trend began with funds focused on emerging markets debt denominated in local currencies as investors looked to play high-growth economies in a new way. Separately, PowerShares said today in a press release that it was launching its answer to the trend tomorrow, on Friday, Sept. 23.

All bonds in RMB must be denominated in renminbi and be eligible for investment by U.S. investors, the filing said. 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 also 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. The index is rebalanced monthly.

Separately, AlphaShares, the China-focused indexing firm where Princeton economics professor Burton Malkiel serves as chief investment advisor, touted the fact that RMB is using its AlphaShares China Yuan Bond Index.

“The young but fast growing market for so-called ‘dim sum’ bonds provides investors the opportunity to own bonds denominated in the RMB giving US investors direct exposure to the Chinese currency” said Malkiel, also an AlphaShares co-founder, said in a press release.

“Historically, these bonds have had low correlations with US bonds and other developed market bonds and as a result are an excellent way to diversify a fixed-income portfolio,” Malkiel said.

Guggenheim and AlphaShares are also partners on China-focused ETFs, the Guggenheim China All-Cap ETF (NYSEArca: YAO) and the Guggenheim China Small-Cap ETF (NYSEArca: HAO) and the Guggenheim China Real Estate ETF (NYSEArca: TAO)

Guggenheim Funds Investment Advisors will serve as investment advisor to the fund, according to the filing.


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