Guggenheim Plans China Bond ETF

by on February 14, 2011 | ETFs Mentioned:

Guggenheim, the Chicagoland ETF issuer that has been a pioneer in the target maturity date  bond ETF space, may have plans to take its fixed income lineup international. The company recently made an SEC filing detailing plans for a China bond ETF. Details on the proposed fund were scarce–no ticker symbol, expense ratio, or even underlying index were included–but the document did shed some light on what would be a first-to-market ETF idea.

Though no index or index provider is specified, the filing mentions that the proposed fund would seek to replicate an index that consists of “publicly-available bonds that are eligible for investment by U.S. investors and denominated in Chinese Yuan, whether issued by Chinese or non-Chinese issuers.” With China’s currency policies an area of heated debate on the international stage, many investors have sought to position themselves to benefit from a gradual appreciation of the yuan. There are two ETFs offering exposure to the dollar/renminbi exchange rate; CYB and CNY have aggregate assets of nearly $700 million [see Seven Wildly Successful Active ETFs].

Over the last several years, more and more investors have embraced the exchange-traded structure as a means of achieving fixed income exposure–despite some lingering concerns about the efficiency of these products [see Are Bond ETFs Broken?]. But the vast majority of bond ETFs focus exclusively on domestic debt issues, and investors have been hesitant to expand their fixed income exposure beyond U.S. borders. According to the ETF Screener, there are about 120 bond ETFs, but only four in the Emerging Markets Bonds ETFdb Category and another four in the International Government Bonds ETFdb Category. State Street (IBND) and PowerShares (PICB) both offer international corporate bond ETFs, and the Europe-heavy WIP is an international option in the inflation-protected bond space. These handful of funds represent only a fraction of total bond ETF assets, though innovation in the space is already underway and may bring more options to the table in coming years.

Last year WisdomTree introduced an emerging markets local debt fund (ELD), and the tremendous interest in that product–it now has more than $600 million in assets–has prompted the firm to lay the groundwork for a further push into the international fixed income space. WisdomTree has filed details on multiple international bond ETFs, including products focusing on Asia, Latin America, and the EMEA region (the company recently said it plans to roll out four to eight new products this year, but was quiet on the asset classes the new additions might cover). Given the tremendous interest in exposure to emerging markets equities in recent years, the relative scarcity of options for accessing emerging markets debt is a bit puzzling. But that may all be changing, with multiple issuers readying to make a heavier push into the international fixed income space [also read Heed Bill Gross' Warning With These Emerging Market Bond ETFs].

Disclosure: No positions at time of writing.