Last week bean counter at My Investment Blog posted about the iShares RMB Bond fund (HK:3139) as a relatively new ETF offering. It sounded interesting so I went and had a look. With more cash sitting in the bank earning next to zero, finding a place where I can invest some of it and at least try to mitigate the effects of inflation without taking undue levels of risk is always welcome.
The iShares RMB Bond Fund meets enough of my criteria to justify investment - it will offer a yield higher than bank deposits (which is not difficult) and is relatively safe from default risk (diversified holdings of bonds).
The uncertainties or negatives are:
1. I am not sure what the yield will be as (i) I could not work out how much of the interest earned on the underlying bonds will be subject to PRC witholding taxes) and (ii) it is inevitable that there will be some defaults in the portfolio at some stage;
2. the underlying bonds are denominated in RMB so I am taking FX risk (or achieving FX diversification) which may affect both the yield and the capital value of my investment in HKD;
3. the underlying bonds would lose value if interest rates were to rise. Given that the average duration is around 3 years, I am not overly concerned about this risk; and
4.the fund is small and illiquid.
Given the short duration of the underlying investments, I will include my units in this ETF as part of my cash/near cash calculation.
I paid HKD43.60-43.70 for my units.