Amid a decidedly low interest rate environment, the bond Exchange-Traded Funds (ETFs) market has been on an upward trajectory, with a current offering of 21 bond ETFs that track 20 distinct indicesNotably, 16 of these indices pertain to interest rate bonds, while only four correspond to credit bond indices—a figure that is set to increase to sixThe expansion of the bond ETF landscape has given rise to a greater number of asset management companies entering the fray, jumping from 11 to 16, indicating a burgeoning interest particularly from institutional investors who are seeking diverse investment options.

As of January 7, a new wave of eight credit bond ETFs was launched, with a significant fundraising target of 24 billion yuanShould everything proceed smoothly, the number of bond ETFs is projected to escalate from 21 to 29, thereby increasing the indices from 20 to 22 and rapidly pushing the total asset scale beyond 200 billion yuan; meanwhile, the number of management firms for these ETFs is set to rise as well

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This expansion marks a substantial development in a sector that has grown tremendously—the bond ETF market realized growth of 1.17 times in the past year alone.

Examining the yield returns illustrates the robustness of this sector: among the 19 bond ETFs with available annual yield data, returns ranged from 2.22% to an impressive 22.35%. Within this group, 11 ETFs—representing 57.89% of the total—achieved over a 5% yield, signifying a healthy and competitive return environmentThis raises a pertinent question: what are the characteristics of these eight credit bond ETFs currently being issued, and will the trend of expansion continue?

The eight newly initiated credit bond ETFs predominantly track two major indices: the Shanghai Stock Exchange Benchmark Bond Index (known as "Shanghai Benchmark Corporate Bonds") and the Shenzhen Stock Exchange Benchmark Credit Bonds Index (referred to as "Shenzhen Benchmark Credit Bonds"). The ETF offerings corresponding to the Shanghai Benchmark Corporate Bonds come from four asset management companies—E Fund, Huaxia, Southern Asset Management, and Haifutong—while the ETFs tied to the Shenzhen Benchmark Credit Bonds are provided by Bosera, GF Fund, Datong, and Tianhong.

Available data from the China Securities Index website indicates that the Shanghai Benchmark Corporate Bonds index was established in February 2023 and currently consists of 184 sample bonds

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As of January 7, this index holds a yield to maturity of 1.89%, a duration of 4.2 years, and a convexity measure of 17.77, boasting an annualized return of 5.15% since its inception.

Furthermore, the Shanghai Benchmark Corporate Bonds belong to an extensive series of indicesFor inclusion, bonds must meet two critical criteria: first, a minimum issuance scale of 3 billion yuan, and second, a credit rating of at least AAAUnder this umbrella, there exists another category: the Shanghai Benchmark Government Bond Index, which features 17 sample bonds and has an appeal of 1.39% yield to maturity, showing promising returns of 6.28% since its launch.

In stark contrast to the Shanghai corporate bond offerings, the aforementioned government bond index has already given rise to a related ETF, namely the Huaxia Shanghai Benchmark Government Bond ETF

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As per data from Oriental Wealth Choice, as of January 7, this particular ETF reported a share count of 0.04 billion and a net asset value of 382 million yuan, showcasing a commendable annualized return of 8.63%. Of interest is the fact that institutional investors dominate the shareholder composition, holding approximately 59.49% of the shares.

Delving further into the composition, the 184 component bonds of the Shanghai Benchmark Corporate Bonds indicate a diverse mix as they originate from 64 different companiesWithin this assortment, 19 are publicly traded companies—some of which include China Railway Group, China National Chemical Corporation, Shandong Gold, and Yanzhou Coal Mining Company—and the rest come from non-listed enterprises, such as Beijing Construction Group and China Huadian Corporation.

When analyzing ownership, it is interesting to note that the majority of control over the 64 companies referenced is held by state-owned assets supervision bodies and local state-owned enterprises

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Yet, one exception is “23 Geely K1”, which is controlled by Li Shufu, founder of Geely Holding, demonstrating the presence of privately held enterprises within this predominantly public landscape.

On the industry front, the sample bonds categorize into 19 sectors, with construction and decoration leading the list followed by diversified services, coal, transportation, and utilitiesEach of these sectors contributes a significant number of bonds, underpinning a robust and varied corporate landscape.

Looking now toward the Shenzhen Benchmark Credit Bonds, established in April 2023, this index currently includes 118 component bondsThese bonds fall under the Shenzhen Stock Exchange's standards, representing a mixture of corporate bonds and enterprise bonds that have met rigorous criteria, asserting a minimum scale of 1.5 billion yuan and, conversely, 1 billion yuan for specific green bonds and debt issued by private enterprises.

Comparative metrics reveal that the Shenzhen Benchmark Credit Bonds are structured akin to their Shanghai counterparts, with an index revision cycle every month

So far, this index has recorded an annualized yield of 4.96% since its inception, but more detailed characteristics such as yield to maturity and duration have yet to be officially consolidated.

With 118 bonds in the mix sourced from 46 distinct companies, a significant portion remain from private industry, although a few notable publicly listed companies, including TCL Technology and Shenzhen Energy, also contributeSimilar to the Shanghai Benchmark Corporate Bonds, control over these issuers tends to lean towards state ownership, although there are exceptions with individual businessmen or privately held enterprises managing a fraction of the debt.

The introduction of these eight credit bond ETFs is crucial; it enriches the offerings for indices associated with credit bondsThe previously established 21 bond ETFs primarily tracked 20 indices, with only 4 designated credit bond counterparts, signifying a gap in the market.

These four credit bond indices each had only one ETF tracking them—the Bosera Convertible Bond ETF, Ping An Corporate Bond ETF, Haifutong City Investment Bond ETF, and Haifutong Shanghai Convertible Bond ETF, collectively accounting for about 37.92% of the total bond ETF assets.

By the end of 2024, the number of companies managing bond ETFs will reach 16, a significant leap facilitated by the addition of five new players: E Fund, Southern Asset Management, GF Fund, Datong, and Tianhong Asset Management.

According to Li Yishuo, General Manager of E Fund's Fixed Income Specific Strategy Investment Department, the introduction of these credit bond ETFs is set to enhance the comprehensive product system of bond ETFs, improve the liquidity within exchange-traded bond markets, and lower the fundraising costs for issuers, thus playing a vital role in post-pandemic economic recovery.

Historically speaking, bond ETFs have been slow to develop compared to their equity counterparts

Since the inception of the first bond ETF, the Guotai Government Bond ETF in 2013, credit bond ETFs only emerged in 2018 and have only recently surpassed the 100 billion yuan threshold, highlighting a significant path still to be traveled.

Despite just a single new entrant in the number of bond ETFs for 2024, the scale saw a dramatic rise—from 802 billion yuan at the start of the year to about 1.74 trillion yuan, reflecting an impressive growth rate of 1.17 times.

In light of the inability to access detailed underlying asset information for public investment products, the growing reliance on transparent bond index funds is anticipated to stimulate demand within banking sectors.

Insider takes from Huolong Securities suggest that bond ETFs are now being considered a critical allocation direction among globally savvy investors