UBS launches China government and policy bank bond ETF

Apr 27th, 2020 | By | Category: Fixed Income

UBS has launched a new fixed income ETF in Europe providing exposure to renminbi-denominated government and policy bank bonds issued in China.

UBS launches China government and policy bank bond ETF

The fund provides exposure to Chinese treasury and policy bank bonds listed on the interbank bond market.

The UBS ETF – JP Morgan CNY China Government 1-10 Year Bond UCITS ETF has listed on Xetra in euros (JC11 GR) and is expected to list on Borsa Italiana (CIB IM) and SIX Swiss Exchange (CNYGB SW) later this month.

It comes with an expense ratio of 0.33%, slightly cheaper than comparable ETF offered by BlackRock and Goldman Sachs Asset Management (GSAM).

The fund is linked to the JP Morgan China Government + Policy Bank 20% Capped 1-10 Year Index which reflects the performance of fixed-rate RMB-denominated treasury bonds and policy bank bonds listed on China’s interbank bond market.

Floating-rate, inflation-linked, and capitalizing/amortizing bonds are not eligible for inclusion in the index.

Policy banks include China Development Bank, Agricultural Development Bank of China, and Export-Import Bank of China. These three policy banks are responsible for financing economic and trade development as well as state-invested projects. Each has a maximum share of 20% in the index.

Eligible securities must have a remaining maturity between one and ten years. The index includes government bonds with a minimum size of CNY 7bn and policy bank bonds greater than CNY 3bn.

As of the end of February 2020, the index consisted of 209 constituents and exhibited an index yield of 2.84% with an average modified duration of 4.14 years. Rebalancing occurs on a monthly basis.

Both the China Development Bank and Agricultural Development Bank of China reached their caps of 20%, while the Export-Import Bank of China had a weight of 14.4%. Chinese government bonds made up the remaining 45.6%.

BlackRock launched a similar fund last year. The $500m iShares China CNY Bond UCITS ETF (ICGB GY) tracks the Bloomberg Barclays China Treasury + Policy Bank Index and comes with an expense ratio of 0.35%.

Goldman Sachs Asset Management offers a fund that specifically targets bonds issued by the Chinese treasury and regional Chinese governments. The Goldman Sachs Access China Government Bond UCITS ETF (GASF GR) tracks the FTSE Goldman Sachs China Government Bond Index and also costs 0.35%.

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