An area of significant growth and innovation in the exchange traded fund space in the past year or so is that of Emerging Markets Bond products.
Specifically, there has been building institutional interest in China specific products in this category, and thus, there are now three investment options available to ETF users. PowerShares Chinese Yuan Dim Sum Bond (NYSEArca: DSUM) launched in September of last year, and tracks the Citigroup Dim Sum (Offshore CNY) Bond Index.
The ETF invests in bonds that are issued an settled outside of China, but are Chinese Yuan denominated.
Similarly, Market Vectors Renminbi Bond (NYSEArca: CHLC) is based on a proprietary index of Van Eck, the issuer, and invests in bonds that are issued by entities including Chinese, non-Chinese corporate, government, quasi-government, and supranational issuers.
Like DSUM, the bonds are denominated in Chinese Yuan.
Finally, Guggenheim Yuan Bond (NYSEArca: RMB) tracks the AlphaShares China Yuan Bond Index and also holds bonds that are issued by U.S. or foreign investors that are denominated in Chinese Yuan. None of these funds are identical, and thus they invest in different types of “paper.”
CHLC is about 75% weighted towards corporate bond issues, with 19.41% invested in cash and equivalents and the remainder of the fund owning government bonds. DSUM has a 73.80% weighting towards supranational issues, a 21% weighting in domestic sovereign issues, and 2.70% in agency bonds. RMB on the other hand is about 83% corporate bond issue oriented, and 17% weighted towards government issues.
From an expense ratio standpoint, CHLC is priced the lowest, at 0.39%, followed by DSUM at 0.45% and RMB at 0.65%. Since all of these products are relatively new to the market, having debuted in the latter part of 2011, we have a limited amount of live trading history to draw from in comparing returns.
Since September of 2011 when the first of these products began trading live, CHLC has returned 1.69% while RMB is down 0.27% followed by DSUM losing 2.08% during this timeframe.
PowerShares Chinese Yuan Dim Sum Bond