New ETF filed: China onshore bond market (Exchange Traded Concepts)

Capital Link/Asia Times Financial 50 Chinese Mainland Bond ETF
Ticker: CMB
Exchange: NYSE Arca

Effective date: February 8, 2021
CUSIP: N/A
Expense ratio: N/A
Index: ATF ALLINDEX China Bond Onshore Market 50 Index

Index provider: ALLINDEX AG

Strategy summary (Index methodology)

The Index is designed to measure the performance of the Chinese onshore bond market.

CNY-denominated bonds issued in the PRC by

• Corporates (12.5%)
• State-owned enterprises (entities controlled and managed by the Chinese state) (12.5%)
• Financial institutions (39%)
• Local governments (10%)
• Policy banks (state-owned banks responsible for financing economic and trade development and state invested projects) (6%)
• PRC government (20%)

The universe of securities eligible for inclusion in the Index consists of all Chinese Bonds traded on the China Interbank Bond Market and available through China’s Bond Connect Program.

From this eligible universe, bonds are filtered based on a number of selection criteria, including:

• Rating (A- and above)
• Maturity (1 to 7 years left)
• Issue Size (depends on issuer)
• Trading Volume (depends on issuer)

Last step: Ensure only one bond per issuing entity is included, except that 10 bonds issued by PRC will be included.

Number of constituents: 50 bonds

Prospectus is here.

Extract from prospectus:

Principal Investment Strategies

The Fund will normally invest at least 80% of its total assets in securities of the Index. The Index is designed to measure the performance of the Chinese onshore bond market. The Index includes Chinese Yuan (“CNY”)-denominated bonds issued in the People’s Republic of China (“PRC”) by corporates (privately owned entities with state ownership of less than 25%), state-owned enterprises (entities controlled and managed by the Chinese state), financial institutions, local governments, policy banks (state-owned banks responsible for financing economic and trade development and state invested projects), and the PRC government (collectively, “Chinese Bonds”). The securities market of China is considered an emerging market. Under normal circumstances, the Fund will invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in Chinese Bonds.

The universe of securities eligible for inclusion in the Index consists of all Chinese Bonds traded on the China Interbank Bond Market (“CIBM”) and available through China’s Bond Connect Program (“Bond Connect”). From this eligible universe, bonds are filtered based on a number of selection criteria, including:

(1) rating – a bond must have a rating that is equal to or above A-;

(2) maturity – a bond must have between one to seven years left to maturity;

(3) issue size – the bond issuance must be of a certain CNY amount, which varies depending on the type of issuer of the bond as follows (in millions): corporate, 1,000 CNY; state-owned enterprises, 2,000 CNY; financial institutions, 1,000 CNY; local governments, 700 CNY; and policy banks, 1,000 CNY; and

(4) trading volume – each bond’s trading activity is analyzed to ensure a certain amount of trading took place over the prior twelve month period. The amount of trading required differs depending on the type of issuer of the bond as follows: corporate, three times per year; state-owned enterprises, three times per year; financial institutions, one time per year; local governments, one time per year; and policy banks, one time per year.

Once these filters are applied, the last step is to ensure that only one bond per issuing entity is included in the Index, with the exception that 10 bonds issued by the PRC are included. The Index includes 50 bonds, with each segment of bonds weighted as follows: corporates, 12.5% of the Index; state-owned enterprises, 12.5%; financials, 39%; local governments, 10%; policy banks, 6%; and government bonds, 20%. The Index may include Chinese Bonds of any duration. The Index is reconstituted and rebalanced on a quarterly basis.