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KraneShares Looks To China With New Junk Bond ETF

July 2, 2018 9:44 am
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KraneShares Looks To China With New Junk Bond ETF

High-yield corporate debt is made more accessible to a wider range of investors thanks to exchange traded funds. That includes junk-rated debt corporate bonds in ex-U.S. markets.

The KraneShares CCBS China Corporate High Yield Bond USD Index ETF (NYSE:KCCB), which debuted Friday, adds to the field of ex-U.S. junk bond ETF offerings. KraneShares is the firm behind the KraneShares CSI China Internet ETF (NASDAQ:KWEB), among other China and emerging markets plays. The new KCCB is the firm's second ETF focusing on Chinese commercial bonds.

What Happened

The new KraneShares ETF tracks the Solactive USD China Corporate High Yield Bond Index. That index “seeks to track the performance of outstanding high yield debt securities denominated in U.S. dollars issued by Chinese companies,” according to New York-based KraneShares.

China Construction Bank, the world's second-largest bank as measured by assets, is the sub-adviser for the new ETF.

Why It's Important

KCCB comes to market at a time of significant growth for the Chinese corporate junk bond market.

“China USD high yield bond issuance increased over 100 percent in terms of number of bonds and in value from 2016 to 2017,” according to KraneShares. “By May 31, 2018, the total USD China Corporate High Yield Bond market size reached $153 billion with over 122 issuing companies.”

Bonds in KCCB must have two to five years of remaining maturity with a par value of at least $300 million for inclusion. The issuer must have at least $1 billion in outstanding public debt. To be included in the new ETF's underlying index, bonds must be rated junk by either Fitch Ratings or Moody's Investors Service.

What's Next

Components in KCCB's index are weighted by market value and there is 40-percent sector cap. The index also has a 5-percent issuer cap. The index was created in early 2014.

KCCB has an annual expense ratio of 0.68 percent, or $68 on a $10,000 investment.

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