ETF Pipeline: Van Eck Planning “Dim Sum” Bond ETFs

by on August 2, 2011 | ETFs Mentioned:

Van Eck, the firm behind the first ETF focusing exclusively on Latin American debt, made an SEC filing last week detailing plans to launch a fund covering China’s debt market. The proposed Market Vectors Dim Sum Bond ETF would invest in “Chinese yuan denominated debt obligations issued outside of mainland China by Chinese or non-Chinese issuers, including corporations, governments and government and supranational agencies” according to the filing. The filing also mentioned that the proposed fund would use a sampling approach to replicate the Dim Sum Bond Index. Details on the exact benchmark, such as index provider, weren’t included in the filing.

The approach to accessing China’s fixed income markets that would be employed by the proposed ETF is consistent with products that tap into the Chinese equity market. Most China ETFs invest in securities that are listed either on stock exchanges in Hong Kong or ARDs listed on major American exchanges. Van Eck currently offers the only U.S.-listed ETF that offers access to China’s A-Shares market, PEK [see China ETFs Research Report].

The filing for the Dim Sum bond ETF adds to a crowded field of proposed funds that would offer a way to invest in Chinese debt. Van Eck also filed recently for a pair of “Greater China” bond ETFs that would focus on debt of corporations located in China, Hong Kong, and Taiwan. Those products included the Market Vectors Greater China Corporate Bond ETF and Greater China High Yield Bond ETF.

Other issuers are also racing to bring a China bond ETF to market. PowerShares, WisdomTree, and Guggenheim are among the other issuers that have laid the groundwork for a fund focusing on Chinese fixed income securities. Guinness Atkinson recently launched an actively managed mutual fund, the Renminbi Yuan & Bond Fund, that invests in Renminbi Yuan bonds and cash deposits.

Emerging Markets Bond ETFs

While the vast majority of fixed income ETFs focus on debt of U.S. issuers, interest in international bonds has grown considerably in recent years. There are now seven ETFs in the Emerging Markets Bonds ETFdb Category, including funds that invest in dollar denominated securities and those that invest in debt issued in the local currency. The latter strategy, which Van Eck indicated would be used by the Dim Sum Bond ETF, gives investors exposure to the relevant exchange rates. When the dollar depreciates, debt denominated in local currencies should outperform otherwise comparable dollar-denominated products [compare the returns of EMLC vs. EMB to see the potential impact of currency exposure].

In addition to several products that focus on a number of different countries, there are a handful of more targeted emerging market bonds ETFs. WisdomTree debuted the Asia Local Debt Fund (ALD) in March, and Van Eck rolled out its LatAm Aggregate Bond ETF (BONO) in May. ALD has gathered more than $500 million in assets, while BONO has been much slower to build up AUM.

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Disclosure: No positions at time of writing.