Van Eck launches “dim sum” bond ETF

Oct 12th, 2011 | By | Category: Fixed Income

New York-based asset manager Van Eck Global announced today that it has launched the Market Vectors Renminbi Bond ETF (CHLC), an exchange-traded fund which offers investors exposure to Chinese renminbi (RMB)-denominated bonds, popularly referred to as “dim sum” bonds.

Van Eck launches "dim sum" bond ETF

Van Eck launches “dim sum” bond ETF

The ETF seeks to track, before fees and expenses, the price and yield performance of the Market Vectors Renminbi Bond Index, a proprietary index designed to track the performance of RMB-denominated investment-grade bonds or unrated bonds from investment grade issuers in and outside of China.

“The world is transitioning from a period of US dollar dominance to an era of currency blocs that better reflect the dispersion of economic growth. Certainly, the renminbi will be one of those currency blocs and China has taken significant steps to internationalize the RMB over the past two years,” said Jan van Eck, Principal at Van Eck Global. “As this trend continues, investors should consider allocating to each of these blocs over time, but neither China stocks nor China bonds are represented in widely used indices. By adding CHLC [the ETF’s NYSE ticker], we’re looking to make it easier for investors to add RMB-denominated exposure to their portfolios.”

The launch of this latest issue reiterates Van Eck’s belief in the China investment theme. In 2008, the firm distributed a US-listed Chinese currency exchange-traded note (ETN) which allowed investors to gain indirect exposure to Chinese currency; and in 2010 the firm launched an ETF designed to track the performance of an index composed solely of China A-Shares.

“Given China’s recent rapid economic growth, a market consensus has developed that the country’s currency is undervalued,” said Adam Phillips, Managing Director of ETFs at Van Eck Global. “Yet investors have historically been somewhat limited in the ways by which they could get investment exposure to Chinese currency. CHLC will allow investors to gain exposure to high-quality RMB-denominated bonds, thereby providing the potential for investment income as well as currency appreciation, all through a transparent and cost efficient ETF.”

It should be noted that investing in RMB-denominated bonds is not without risks, including currency, credit, and concentration risk, as well as risks associated with greater market volatility. Investments in securities of foreign issuers also involves risks such as a lack of availability and reliability of financial information, higher transactional and custody costs, taxation by foreign governments.

The Van Eck “Dim Sum” issue follows hot on the heels of recent launches by rival ETF providers Guggenheim, which listed the Guggenheim Yuan Bond ETF (RMB), and Invesco PowerShares, which offers the PowerShares Chinese Yuan Dim Sum Bond Portfolio ETF (DSUM).

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