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PowerShares Rolls Out ‘Dim Sum’ Bond ETF

Invesco PowerShares launched a bond fund focused on yuan-denominated Chinese debt, the second such fund to come to market in as many days, as the ETF industry shifts into high gear to offer investors nondollar-denominated fixed-income vehicles focused on one of the world’s fastest-growing countries.

The PowerShares Chinese Yuan Dim Sum Bond Portfolio (NYSEArca:DSUM) comes with an annual expense ratio of 0.45 percent, making it less expensive than the Guggenheim Yuan Bond ETF (NYSEArca:RMB) that began trading yesterday.

The “dim sum” bond market came into being in 2007 when mainland Chinese financial institutions were first allowed to issue yuan-denominated bonds offshore. Since then, the market has grown significantly, particularly since its deregulation in July 2010, PowerShares said in a press release. The bonds are generally issued in Hong Kong by governments, agencies, supranationals and corporations.

”The Dim Sum bond market offers attractive coupons, and the ability to participate in the appreciation potential of the yuan over time,” Ben Fulton, Invesco PowerShares managing director of global ETFs, said in its press release.

The intense focus in the ETF industry on yuan-denominated bonds, which also includes fund sponsors such as WisdomTree, ETSpreads and Van Eck Global, in many ways began in the wake of the successful launch of debt funds focused broadly on emerging markets debt in local currencies in the summer of 2010. Van Eck’s China plans include two ETFs, one index-based and the other actively managed.

The most successful broad developing markets debt ETF is the WisdomTree Emerging Markets Local Debt Fund (NYSEArca:ELD), which has $1.34 billion in assets, making it the fifth-largest international fixed-income ETF, according to data compiled by IndexUniverse. Van Eck’s competing Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca:EMLC), has meanwhile gathered almost $520 million.

The pure Chinese focus, in turn, seemed to be encouraged by the quick success of the WisdomTree Asia Local Debt Fund (NYSEArca:ALD).

ALD was launched in March and has gathered more than $650 million in assets in about six months, opening the door to the ETF marketing mania focused on China that seems to have only just begun.

DSUM Details

PowerShares’ DSUM is based on the Citigroup Dim Sum (Offshore CNY) Bond Index, PowerShares said.

The ETF will normally invest at least 90 percent of its total assets in Chinese yuan-denominated bonds that comprise the index. The index measures the performance of Chinese yuan-denominated “dim sum” bonds that are issued and settled outside of mainland China.

The benchmark includes fixed-rate securities that have a minimum maturity of one year and a minimum size outstanding of 1 billion yuan.

It is managed by Citigroup Index LLC, is reconstituted on a monthly basis and is expected to have monthly distributions, PowerShares said.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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