Stratton Street UCITS Renminbi Bond Fund UI
The Stratton Street UCITS Renminbi Bond Fund UI is a Luxembourg registered UCITS launched in October 2013 that invests with the same strategy that has been successful since 2007 in Stratton Street’s Guernsey domiciled Renminbi Bond Fund.
Like the original fund, the Fund invests in investment grade Asian bonds, hedged into the Chinese renminbi. The Fund currently has a euro class, so the buyer is exposed to the appreciation of the renminbi against the dollar, but with the dollar exposure hedged into euros, providing less volatility for a euro-based investor.
The strategy of investing in hedged dollar bonds at present is due to the fact that the renminbi bonds market that is open for foreign investment, the “dim sum” bond market is small, illiquid and expensive. At some point the large onshore Chinese bond market will open up and be available for the Fund to invest in, but until then renminbi bonds provide the most attractive way to get exposure.
China still has a large trade surplus, and we believe that in purchasing parity terms it is still substantially undervalued. The Chinese authorities manage the renminbi very carefully, allowing it to appreciate only very gradually, remaining in a fairly narrow range around the official fixing. This has meant that for investors it has provided positive returns with very little volatility. We believe that the appreciation will continue in years to come, and volatility will remain low.
The Fund uses Stratton Street's net foreign asset analysis to avoid investing in heavily indebted countries, and instead to invest in creditor nations. Many Asian countries, including China, are large creditors, and lending to them is much safer than lending to debtor countries, like much of Europe, and yet the returns available from their bonds are actually higher in many cases.