Exchange Traded Spreads Trust has filed paperwork with the SEC for a “ETS Offshore RMB Bond Fund ETF.” The Fund seeks investment results that correspond generally to the performance, before the Fund’s fees and expenses, of the [RMB Index] (the “Underlying Index”). They did not specify a trading symbol or exchange ratio in the initial filing.
Principal Investment Strategies
The Fund seeks to achieve its investment objective by investing under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities (“Component Securities”) of the [RMB Index] (the “Underlying Index”). The Fund may invest the remainder of its assets in Fixed Income Instruments that are not Component Securities, but which ETSpreads, LLC (“ETSpreads” or the “Adviser”) believes will help the Fund track its Underlying Index, as well as in cash and investment grade, liquid short-term instruments, forwards or derivatives, such as options, futures contracts or swap agreements. The average portfolio duration of this Fund will closely correspond to the duration of its Underlying Index, which as of [ ] was [ ] years. Duration is a measure of the expected life of a fixed income security that is used to determine the sensitivity of a security’s price to changes in interest rates.
The Underlying Index is an unmanaged index comprised of RMB denominated bonds issued outside the Mainland of China. It currently includes RMB denominated bonds issued in the Hong Kong Special Administrative Region (“HKSAR”), but may include RMB denominated bonds issued in other countries or regions in the future. RMB denominated bonds with settlements, coupon payments and principal repayments paid in another currency based on prevailing foreign exchange rates against RMB are also included. The Underlying Index includes both Chinese and non-Chinese issuers comprised of corporations, governments, agencies and supra-national agencies. Underlying Index constituents are capitalization-weighted, based on their current amount outstanding. As of [ ], 2011, there were [ ] issues in the Underlying Index. The securities comprising the Underlying Index must have a minimum of [ ] months remaining maturity as of an index rebalancing day and are not required to have a credit rating. In addition, qualifying securities must have a minimum RMB[ ] million of outstanding face value. Both fixed and floating rate bonds qualify for inclusion in the Underlying Index, however, convertible and exchangeable bonds do not qualify. Also, certificates of deposit are excluded from the Underlying Index as are private placements or bonds without a regular and reliable daily pricing source. The full amount of coupon receipts and interim cash flows (e.g. principal amortization) are held in cash at zero interest rate intra-month, and will be re-invested in the Underlying Index on the next closest index rebalancing day. It is not possible to invest directly in the Underlying Index. The Underlying Index does not reflect deductions for fees, expenses or taxes.
The Adviser uses an indexing approach in managing the Fund’s investments. The Fund employs a representative sampling strategy in seeking to achieve its investment objective. In using this strategy, the Adviser seeks to invest in a combination of Component Securities and other instruments such that the combination effectively provides exposure to the Underlying Index. In using a representative sampling strategy, the Fund may not track its Underlying Index with the same degree of accuracy as a fund that replicates each of the Component Securities of the Underlying Index. Unlike many investment companies, the Fund does not attempt to outperform the index the Fund tracks. An indexing approach may eliminate the chance that the Fund will substantially outperform its Underlying Index but also may reduce some of the risks of active management.
The Fund may invest in derivative instruments, such as options, futures contracts or swap agreements. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis. The Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs). The “total return” sought by the Fund consists of income earned on the Fund’s investments, plus capital appreciation, if any, which generally arises from decreases in interest rates.
For the complete filing click: HERE