Clearing The Confusion In Chinese Yuan ETFs

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Includes: CNY, CYB, FXCH, MS
by: FX Metrix, LLC

Summary

Three ETFs all seek to track the exact same currency, yet they are not the same.

We do a side-by-side comparison of the ETFs, then analyze the data to help determine which of the Chinese currency ETFs is right for you.

Each Chinese Yuan ETF has its own strengths and weaknesses ranging from expense ratios to average bid-ask spread.

Background
For investors who want exposure to the Chinese Yuan without a futures or fx account, they can turn to three different choices of ETFs. It should be noted that when it comes to the choices for Yuan ETFs, these funds are not the same. This tempted us to do a side-by-side comparison to help investors as well as traders determine whether or not they are using the proper Chinese Yuan ETF for their needs.

While there is one obvious thing in common with these three products, the differences are all too often overlooked. Assuming one Chinese Yuan ETF is the same as the other is a foolish mistake. As we dig through the details of these three instruments, we hope investors are able to better determine which Chinese Yuan ETF is the best for them. The three ETFs in order of AUM are as follows:

  1. WisdomTree Chinese Yuan Strategy ETF (NYSEARCA:CYB)
  2. Market Vectors Chinese Renminbi/U.S. Dollar ETN (NYSEARCA:CNY)
  3. CurrencyShares Chinese Renminbi ETF (NYSE:FXCH)

CYB Chart

All three funds seek to give investors exposure to the Chinese Yuan, yet there are clear differences. As shown above on a one-year chart, the three different ETFs were loosely correlated, despite slightly varying performances over the last one-year period. As we analyze the details and differences of these three Chinese Yuan products, we hope to help investors and traders better determine which one is the best tool to use for their desired exposure.

Side-By-Side

Ticker

CYB

CNY

FXCH

Fund Name

WisdomTree Chinese Yuan Strategy ETF

Market Vectors Chinese Renminbi/USD ETN

CurrencyShares Chinese Renminbi ETF

Price (Open 2/10/16)

$24.44

$41.12

$76.05

AUM

$58.67 M

$19.8 M

$7.51 M

Expense Ratio

0.45 %

0.55 %

0.40 %

Structure

Open-End Fund

ETN

Grantor Trust

Counterparty Risk

N/A

Morgan Stanley

N/A

Average Daily Volume ($)

$986.63 K

$85.18 K

$19.14 K

Average Bid-Ask Spread (%)

0.18%

2.30%

0.10%

Yuan vs. Renminbi
When looking at the fund names in the table above, one may notice that some refer to the currency as Renminbi, where as some refer to the currency as Yuan.

To clarify, Renminbi is the name of the currency itself. Yuan is the unit of Chinese currency. The best analogy we have found is the British Pound Sterling. When we see £20, we think twenty Pounds, not twenty Sterling. The same goes for Yuan. When we see ¥20 CNY, that is twenty Yuan, not twenty Renminbi For further reading on the usage of Yuan vs. Renminbi, see the references section at the bottom.

Lowest Expense Ratio
For the Chinese Yuan investors with a longer-term investment outlook, the higher expense ratios of CNY at 0.55% of AUM annually can shave away some potential gains. CNY investors looking to lower their expense ratios should be considering CYB or FXCH as a means of gaining exposure to Yuan with lower expense ratios of only 0.45% and 0.40% respectively.

While FXCH has the lowest expense ratio out of the three with 0.40%, it should be noted that this fund has the lowest AUM out of the three. ETFs risk being shut down if AUM drops too low.

Lowest Bid-Ask Spread
For the Chinese Yuan ETF investors who tend to change their mind on trades often, or for those who just happen to be active traders in general, look to the ETF with the lowest bid-ask spread. In this measure, we believe that the choice is clear for active traders: FXCH. With the lowest average bid-ask spread of 0.10%, FXCH is by far the lowest cost ETF in terms of transaction costs (commissions held constant).

Lowest Commissions
For those traders really looking to cut transaction costs on their Chinese Yuan ETF trades, there is currently a commission free option depending on your broker. CYB is currently available for commission free trading through E*TRADE Financial (NASDAQ:ETFC).

Highest Volume
CYB is by far the fund with the most liquidity in terms of average volume, which is believable as it is the largest of the three funds by AUM. CYB is therefore the fund of choice for traders looking to move in and out of the Chinese Yuan ETF market with measurable size. Trading big in any of the other funds could make waves and chase the share price up quickly.CYB Volume Chart

CNY's ETN Structure
As mentioned in the table above, one big difference between these instruments is legal structure. CNY is structured as an exchange traded note a.k.a. an ETN. The other funds are structured as either an open ended fund or a grantor trust respectively. Since an ETN is essentially an exchange-traded unsecured debt instrument, there is some degree of counterparty risk involved.

The issuer of CNY is Morgan Stanley (NYSE:MS), which means that there is some, but limited counterparty risk down the line, as Morgan Stanley is viewed as a fairly stable financial institution despite recent hits to MS stock prices. It should be noted that according to the Ohlson Score Default Probability, Morgan Stanley is at its highest default risk in the last year or more.

MS Chart

Share Price
Last but not least, we wanted to mention share price because this comes into consideration for smaller traders/investors with limited capital trying to trade in round lots. When it comes to share price, smaller traders can look towards CYB which currently trades at roughly $25 per share. Be sure to check the premium/discount to NAV as well as bid-ask spread that the fund is trading at before timing an investment.

Conclusion
We hope this was a useful and comprehensive guide to investing in Chinese Yuan ETFs. We look forward to keeping investors informed on any new developments as we see them. Be sure to check out our similar articles on Sugar ETFs, Platinum ETFs, and Silver ETFs.

References

Chinese Yuan Futures

Yuan vs. Renminbi

CYB ETF Profile

CYB ETF Website

CNY ETF Profile

CNY ETF Website

FXCH ETF Profile

FXCH ETF Website

E*TRADE Comission Free ETFs List

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.