WisdomTree International MidCap Dividend DIM

Mike Rawson : Dim sum, it's not just for breakfast anymore. Hi, there. I'm Mike Rawson, ETF analyst with Morningstar. Joining me today is Patty Oey, also an ETF analyst with Morningstar. Patty, thanks for joining me. Patricia Oey : Thanks for having me. Rawson : Patty, in the last month, three ETFs have launched which track dim sum bonds. First of all, what are dim sum bonds, and why all the interest all of a sudden? Oey : Dim sum bonds are Chinese currency-denominated bonds, and they are available to foreign investors. So, as many people know, China employs very strict capital control. So, generally it's very difficult for foreign investors to access local bonds and the currency as well. So, there has been a lot of interest in dim sum bonds, because investors are trying to access the anticipated appreciation of the Chinese currency. Rawson : So, when you dig into these ETFs, what are some of the key points that investors should be aware of? Oey : Well, actually investors should realize that this asset class is still very, very small and relatively very young. The first dim sum bond launched about a couple of years ago, and right now the whole market of total bonds outstanding is only about US$30 billion, which is very small. Other emerging market local currency debt markets are actually much larger, and the whole emerging market local currency market is about $6 trillion. So Chinese dim sum bonds are currently less than 1%. And just to put that in context, if you look at the equity market, the

investors should also know the credit risk. Most of the issuers of dim sum bonds have been Chinese banks, and there is definitely a lot of concern about their balance sheets, given their surge in loan growth during 2009 as part of the government stimulus. Rawson : OK. So, what you're saying is, despite the fact that some of these bonds have some credit risk, the investor demand has been so strong that investors may not be getting compensated for the risks they're taking? Oey : Yes. Rawson : What other risks are there? You mentioned that China has just recently begun to open up its bond markets and its currently market. Are there any other risks in terms of the regulatory risks that investors face? Oey : I definitely think regulatory risk is an issue. ... Dim sum bonds were created as part of the Chinese government's efforts to internationalize their currency, but in the near term, they ...

small. So, I think it's not a good idea to buy this dim sum bonds right now. I know investors are very interested in accessing Chinese growth. There is also an handful of ETFs and ETNs that provide currency exposure by holding swaps and currency forwards, and actually those products haven't tracked the appreciation of the Chinese currency that well, either. So I wouldn't necessarily recommend those, either. The best option right now is perhaps to buy a diversified Asian local currency bond ETF. WisdomTree has one. The ticker is ALD. They recently started including Chinese dim sum bonds in their portfolio. Right now, it accounts for 6%, but it's broadly diversified. It also invests in local currency debt