This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

'Dim Sum' ETFs Offer China Bond Exposure

NEW YORK ( TheStreet) -- The latest fad in exchange-traded funds is ETFs that own bonds issued in Hong Kong and denominated in renminbi, the Chinese currency.

These are known as "dim sum" bonds, after the small plates of food served for breakfast and brunch in southern China.

Two funds investing in these bonds were listed last week, and more are in registration. China's importance in the world economy continues to grow, and the special administrative region of Hong Kong is a key financial center.

China's bond market is growing, and more and more global companies are issuing debt denominated in renminbi.

Companies like McDonald's (MCD - Get Report), Caterpillar (CAT) and Yum Brands (YUM) have already issued dim sum bonds.

The first two funds to be listed are the Guggenheim Yuan Bond ETF (RMB) and the PowerShares Chinese Yuan Dim Sum Bond Portfolio (DSUM).

There are some notable differences between these two funds.

The Guggenheim fund has 37 holdings with an average maturity of 2.6 years and an average coupon of 1.8%, and will charge a 0.65% expense ratio.

The PowerShares fund has only 17 holdings, a 0.45% expense ratio, an average maturity of 3.3 years and a higher coupon, of 3%.

Because of the nature of the market covered and of how ETF dividend payouts work, the dividends of these funds could be different than the yields implied. At this point there is no way to have clarity on the payouts.

Each fund has a combination of government bonds, bonds from Chinese corporations including banks and bonds from foreign corporations.

So why would an investor want to buy these ETFs?

Yields in the U.S. are very low and aren't expected to rise anytime soon. In addition, the greenback appears to be headed lower against multiple currencies. This argues for increasing one's foreign bond exposure, and China's torrid economic growth makes it an attractive investing target.

What's more, many market participants expect China to eventually allow its currency to float freely against the dollar. When that happens, the value of the renminbi is likely to surge, and holders of bonds denominated in the currency would obviously benefit.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
DSUM $24.31 0.00%
CYB $25.55 0.00%
MCD $94.88 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs