Chinese bond funds return the most, but no one cares

By Carolina Wilson and Brandon Kochkodin

As concerns of a possible trade war mount, investors are ignoring ETFs that hold Chinese bonds -- even though they’re the year’s best-performing, non-leveraged US-listed fixed-income funds.

At the top of the list is the VanEck Vectors ChinaAMC China Bond ETF, ticker CBON, which has less than $5 million in assets and has returned 6.4 per cent through April 5. CBON holds yuan-denominated debt issued in China’s onshore market by Chinese corporate, sovereign and quasi-sovereign issuers. Meanwhile, two other exchange-traded funds -- the PowerShares Chinese Yuan Dim Sum Bund Portfolio, known by its ticker DSUM, and the KraneShares E Fund China Commercial Paper ETF, or KCNY -- have returned around 6 per cent.

The renminbi’s appreciation has been a tailwind for investors in China’s onshore bond market, according to Brendan Ahern, chief investment officer of Krane Fund Advisors.

Still, the three ETFs have attracted little cash, with less than $9 million flowing into DSUM this year and nothing going into CBON or KCNY. However, the addition of yuan-denominated government and policy bank securities to the Bloomberg Barclays Global Aggregate Index may be the key to bringing in investors.

“Despite being the third largest bond market and offering significant yield opportunities, foreign investors hold less than 6 per cent of Chinese government bonds,” Ahern said. “The [index’s] coming inclusion should alleviate this historical underinvestment.”