By Yao Jin
Over the last couples of days, fund companies' passion for bond ETF has been collectively ignited. GUOTAI AMC's SSE 5-year national debt ETF has obtained issuance approval from regulatory department and is about to enter the issuance stage; Bosera Asset Management's SSE corporate bond 30ETF has been officially approved by China Securities Regulatory Commission, making it the first corporate bond ETF; and the China Bond new medium-term bill ETF developed by E Fund Management is now being processed by China Securities Regulatory Commission, making it the first bond ETF in China's inter-bank market and exchange market.
The reporter learned from Bosera Asset Management that a key element of Boera's developing products following the corporate bond index is its outstanding rate of return. According to statistics from Wind Information, from January 4, 2010 to December 31, 2012, the aggregate rate of return of the SSE Corporate 30 index was 19.52 percent, an annualized rate of 6.12 percent; in the same period, the aggregate rate of return of China Securities corporate bond index was 17.93 percent, an annualized rate of 5.65 percent.
Bond ETF's attracting the attention of all market participants doesn't come as a surprise. According to analysts, the rapid development of the bond market since 2005 and the accumulation of experience in the 10 years of development of China's ETF funds have laid a solid foundation for the appearance and development of bond ETF.
Besides, foreign bond ETF offers an excellent reference for the development of bond ETF in China. Oversea bond ETF was started in 2000 when the first bond ETF was listed in Canada. The development of bond ETF accelerated after 2005, especially during the international financial crisis from 2007 to 2008 when asset volume of bond ETF grew from US$ 60 billion to about US$ 104 billion. As of the end of the second quarter of 2012, asset volume of bond ETF worldwide reached US$ 302 billion, accounting for 17.06 percent of total ETF assets, an average yearly growth of 53.73 percent, much higher than the growth of stock ETF.
Analysts point out that the great development momentum of bond ETF in oversea markets is closely linked to the fact that it possesses both the merits of open-ended funds and close-ended funds: firstly, diversified investment to reduce risk. By adopting a method of diversifying investment by aiming at targeted bond index, it can effectively reduce the influence of the fall of a particular bond on the investment portfolio. Secondly, high transparency. ETF adopts passive management, duplicating the index it follows. Investors only need to look at the trend of the index to understand the performance of bond ETF. Thirdly, powerful incentive and restriction effects on fund managers. An ETF has the traits of an open-ended fund. The performance of the fund is directly linked to the volume of the fund and its assets, so that it can better encourage and restrict fund managers. Fourthly, low transaction cost.
However, the trait of bond's focusing mainly on major transactions, which is different from stock, would affect the development of bond ETF. The most conspicuous feature of ETF is that it can be purchased and redeemed in a whole securities package. For common investors, however, it is not easy to manage a package of bonds that have rather low fluidity in the bidding system of the exchange, which will directly affect the realization of the arbitrage function of bond ETF.
In the current market environment, industry insiders believe that this important initiative of fund product would fill the blank of China's fixed income ETF products; besides, it is not only conducive to investor's trading bonds both in the inter-bank market and in exchanges, but more importantly, it provides opportunities for investors to make profit on the price difference existing among the inter-bank market, exchanges, and bond ETF, which will improve the fluidity of the bond market.
