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Investing in Human Progress

The Renminbi & the Offshore Renminbi Bond Market

October 2014

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Investing in China’s currency

What is the Renminbi Yuan?

Why would you invest in it?

What is the Yuan worth?

How would you invest in it and what are you buying?

What are the risks and how can they be managed?

What will it do for your clients’ portfolios?

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RMB exchange 1981 – 9/30/2014

Source: Bloomberg. As at 9/30/2014

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0

1

2

3

4

5

6

7

8

9

10

RMB

: USD

Renminbi exchange rate vs. USD

ending at RMB 6.1394 : $1

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China and US gross national savings

Source: World Bank national accounts data, and OECD National Accounts data files.

0.4 0.4 0.5 0.6 0.7 0.9

1.1 1.4

1.8

2.3 2.6

3.1

3.7

4.2

-

1

2

3

4

5

US$ trn

China US

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China trade 1997 – 2012

Source: China Customs General Administration, US Department of Commerce

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In 2013 China’s trade was $4,160 bn. US trade in goods was $3,885 bn.

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China trade surplus 1996 – 2013

Source: China Customs General Administration

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40 44 29 24 23 30 25 33

102

177

262

295

198 185

158

231

260

0

50

100

150

200

250

300

350U

S$ b

n

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China PPP converted GDP per capita

Sources: Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version 7.1, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, July 2012. Guinness Atkinson Asset Management

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China car sales

Sources: China - China Automotive information Net; US - Ward’s Automotive Group; Estimate by Ford Motor Co, 2012

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China’s international integration

Sources: World Bank national accounts data, and OECD National Accounts data files.

0%

5%

10%

15%

20%

25%

Share of world nominal GDP

Share of world trade

Share of world financial integratation*

* Ratio of the sum of external assets & liabilities to world external assets & liabilities

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The Offshore RMB Currency Market Onshore and Offshore Renminbi Exchange Rate vs. USD at 9/30/14

Source: Bloomberg Past performance is no guarantee of future results.

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5.60

5.80

6.00

6.20

6.40

6.60

6.80

7.00

Offshore Renminbi (CNH 6.1792 : $1)

Onshore Renminbi (CNY 6.1394 : $1)

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Renminbi Yuan Yuan exchange rate valuation – Fair value to undervalued A trade surplus of 2.72% of GDP suggests close to equilibrium PPP based measures give 6% to 25% undervaluation Trade is no longer the main determinant of Yuan valuation Rising living standards, capital mobility and overseas demand are more

important Internationalization China’s international trade of goods was valued at $4.16 trillion in 2013 The trade surplus of $260 billion was the third highest on record The value of the currency is supported by

– The 2nd most used currency in trade settlement – Strong foreign exchange inflows

Capital market development and financial reform Opening Yuan-denominated asset markets to foreign investors Easing restrictions on cross-border capital movement Interest rate and exchange rate liberalization

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Yuan denominated cash and asset markets 8-31-10 6-30-11 12-31-12 12-31-13 09-30-14

Offshore RMB (CNH) vs. $ 6.7750 6.4655 6.2240 6.0568 6.1792 Onshore RMB (CNY) vs. $ 6.8078 6.4639 6.2306 6.0543 6.1394 Daily CNH FX volume ($ bn)* N/A 3 7 8 23 Offshore RMB deposits in HK ($ bn) 19 88 97 136 153 Bond market yield (%)** N/A 2.78% 3.83% 4.05% 4.24% Bond market duration (years)** N/A 2.62 2.58 2.79 2.61

Bond market issues 19 102 332 542 845 Bond market cap ($ bn) 6 23 39 56 73

Sources: Bloomberg & Guinness Atkinson calculations, Hong Kong Monetary Authority, HSBC, Bank of China International

*HSBC estimates of volumes in FX spot and forward markets.

**Bond market yield and duration are taken from HSBC Offshore Renminbi Bond Index

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China Government Bond Yields Offshore (CNH) & Onshore (CNY)

Source: Bloomberg

2.56 2.60 2.68 3.04

3.55 3.69 3.77 3.74 4.21

4.42 4.65 3.75 3.80 3.84 3.90 3.93 4.05 4.00 3.98 4.26

4.54 4.68

-1.19 -1.20 -1.16 -0.86

-0.39 -0.36 -0.22 -0.24 -0.05 -0.12 -0.03

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

YTM

Mid

On the run Sovereign CNH & CNY Yield Curves

Govt Yield Curve (CNH)

Equiv Govt Yield Curve (CNY)

On/Offshore Spread

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China Government Offshore (CNH) Bond Yields vs US Treasury Yields

Source: Bloomberg

2.56 2.60 2.68 3.04

3.55 3.74

4.21 4.65

0.09 0.53

0.99

1.70 2.14

2.42 2.72 3.14

2.48 2.07

1.69 1.34

1.41 1.32

1.49 1.51

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

YTM

Mid

CNH Government Yield Curve vs US Treasury Curve

Govt Yield Curve (CNH) US Treasury Curve Spread over UST

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Offshore RMB Bond Yield to Maturity

Source: Bloomberg, HSBC.

The duration of the market as measured by HSBC Offshore (CNH) Renminbi Index is 2.61 years.

Past performance is no guarantee of future results.

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0

1

2

3

4

5

6

Yiel

d %

HSBC Offshore (CNH) Renminbi Bond Index Yield (ending at 4.24%)

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Offshore Renminbi Bond Issuance (RMB bn)

Source: Bank of China International, Guinness Atkinson. As at 9/30/14

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- -

10

- - -

12

- - -

10 6

- -

7

29

9

35

42

22 23

43

28

21 24

49

6

52

67

86

56

0

10

20

30

40

50

60

70

80

90

100

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Offshore RMB Bond Market – by Country

Source: Guinness Atkinson

As of 9/30/14, there are 845 issues outstanding worth $73bn vs. 542 issues worth $56bn a year ago. Shown below, 72% of issues are from China and 28% are international.

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78%

22%

0%10%20%30%40%50%60%70%80%90%

China International

0%

1%

1%

2%

2%

3%

3%

Supr

anat

iona

lAu

s/N

ZAu

stria

Braz

ilCa

nada

Chile

Fran

ceG

erm

any

Indi

aIn

done

sia

Italy

Japa

nKo

rea

Mal

aysi

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exic

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iddl

e Ea

stM

ongo

liaN

ethe

rland

sRu

ssia

Sing

apor

eSo

uth

Afric

aSw

eden

Switz

erla

ndTa

iwan U

K US

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The Offshore RMB Bond Market – by Sector

Source: Guinness Atkinson

As of 9/30/14, there are 845 issues outstanding worth $73bn vs. 542 issues worth $56bn a year ago.

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23%

2% 2% 2% 2%

34%

1%

5%

1% 1% 4%

11%

1% 2% 3% 3% 4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

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Offshore Renminbi Bond Maturity Profile

Source: Bank of China International, Guinness Atkinson. As at 9/30/14.

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51.9%

27.7%

8.1% 4.5%

2.8% 3.0% 1.5% 0.3% 0.1%

0%

10%

20%

30%

40%

50%

60%

1 - 2 Years 3 Years 4 Years 5 Years 7 Years 10 Years 15 Years 20 Years 30 Years

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HSBC Offshore RMB Bond Index Yields

Source: Bloomberg, HSBC.

As at 9/30/2014

Past performance is no guarantee of future results.

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0

1

2

3

4

5

6

7

8

Index Yield 4.24% Govt Bond Index Yield 3.31%

IG ex-Govt Bond Index Yield 3.85% HY Bond Index Yield 5.62%

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Yuan exchange rate volatility is low Yuan currency volatility at September 30 2014 was 2.05%.

Source: Bloomberg & Guinness Atkinson calculations. Weekly data to end December

2013 2012 2011 2005 2000

Offshore renminbi CNH 1.34% 1.20% 3.18% N/A N/A

Onshore renminbi CNY 0.86% 1.36% 1.54% 2.04% 0.08%

Japanese yen JPY 11.03% 7.91% 8.60% 8.66% 9.06%

Euro EUR 7.45% 8.75% 11.90% 8.59% 13.53%

British pound GBP 7.84% 5.96% 8.22% 8.43% 9.32%

Swiss franc CHF 8.75% 8.46% 17.96% 9.29% 12.95%

Brazilian real BRL 12.98% 10.31% 17.48% 13.34% 6.86%

Russian rouble RUB 8.44% 12.19% 13.14% 3.48% 5.21%

South African rand ZAR 12.81% 12.76% 18.61% 14.49% 9.19%

Indonesian rupiah IDR 9.65% 4.21% 5.03% 7.81% 16.61%

Korean won KRW 6.98% 4.94% 10.58% 6.47% 7.41%

Malaysian ringgit MYR 7.92% 5.68% 7.48% 1.16% 0.07%

Singapore dollar SGD 4.83% 4.94% 8.32% 4.11% 4.49%

Thai baht THB 6.29% 4.18% 5.32% 4.46% 7.79%

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GARBX Unhedged Returns (as of 9/30/14)

Source: Guinness Atkinson Asset Management

Past performance is no guarantee of future results. * Launch date 6/30/2011 ** Annualized returns

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. Total returns reflect a fee waiver in effect and in the absence of this waiver, the total returns would be lower. Performance data does not reflect the 2% redemption fee for shares held less than 30 days and if deducted the fee would reduce the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-915-6566 and/or visiting www.gafunds.com.

Currency Bonds Total Returns Returns Returns

2H 2011 1.82% -1.63% 0.16%

2012 1.94% 1.91% 3.88%

2013 2.76% 2.44% 5.26%

2014 YTD -1.98% 1.64% -0.37%

1 Year -1.01% 3.32% 2.28%

3 Years** 1.55% 1.98% 3.56%

Since launch* 1.38% 1.33% 2.72%

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Renminbi Yuan & Bond Fund (GARBX)

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• The Renminbi Yuan & Bond Fund seeks total return. Total return means the combination of capital appreciation and investment income, which includes changes in the value of the Renminbi, the currency of China of which the Yuan is the unit.

• Investment Grade and High Yield issues • Not benchmark managed

Investment parameters Ticker: GARBX Fund size $101.79 million Launch Date: June 30, 2011 Custodian: Brown Brothers Harriman Administrator: Mutual Fund Admin Co. Fund accounting: ALPS Inc Transfer Agent: US Bancorp Fund Services LLC

Fund facts

Renminbi Cash: 5.63% Renminbi Fixed Income: 94.42% Renminbi Certificates of Deposit 0.00% Total Expenses (capped): 0.90% Duration 1.83 years

Portfolio facts

The Fund invests in foreign securities which will involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are greater for emerging markets. The Fund is non-diversified meaning its assets may be concentrated in fewer individual holdings than diversified funds. Therefore, the Fund is more exposed to individual stock volatility than diversified funds. The Fund also invests in smaller companies, which will involve additional risks such as limited liquidity and greater volatility. Investments focused in a single geographic region may be exposed to greater risk than investments diversified among various geographies.

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Renminbi Yuan & Bond Fund Portfolio Metrics

*Rated by Moody’s ** Rated by S&P

Fund holdings and allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security.

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Top Ten Holdings Air Liquide Finance 2016 3.00% 5.56% New World China Land 2018 5.50% 4.85% China General Nuclear 2015 3.75% 3.50% Renault SA 2014 5.63% 3.34% BOC Aviation 2018 4.50% 3.24% ICICI Bank/Singapore 2014 4.90% 3.21% HSBC Bank 2015 2.88% 3.18% Cagamas 2017 3.70% 3.18% Unican 2017 5.60% 3.17% Datang Telecom 2017 5.50% 3.17%

Bond Classification

Government/Supranational 10.70% China/HK Corporate 23.13% China Financial 20.03%

Foreign Corporate 20.03%

Foreign Financial 17.91%

Certificate of Deposit CNH 0.00%

CNH Cash 5.63%

Maturity Profile CNH Cash 5.63% <1 year 15.30% 1-2 years 37.36% 2-3 years 21.77% 3-4 years 7.09% 4-5 years 7.21% 5-7 years 1.74%

Credit Rating AAA** 0.00% AA-** 15.05% A+* 7.16% A/A1* 20.91% A-/A3* 6.73% BBB+** 0.00% BBB** 3.06% BBB-/Baa2* 15.03% BB+** 3.43% BB/Ba3* 0.84% BB-** 4.00% NR 18.20%

Yield Data Duration 1.83 yrs Yield to Maturity 3.65% Running Yield 3.77% Distribution Yield 3.16% SEC Yield Gross 2.26% Net 2.30%

Past performance does not guarantee future results.

As of 09/30/14

Running yield - The annual income on an investment divided by its current market value. Distribution yield - The amount of cash flow received by an income paying instrument. It is calculated by dividing the distributions paid by its cost or net asset value. Yield to maturity - The rate of return anticipated on a bond if it is held until the maturity date.

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Contacts Head Office

Frank Zukowski 1.732.972.2266 frank.zukowski@gafunds.com

Jim Atkinson 1.818.716.2739 jim.atkinson@gafunds.com

21550 Oxnard Street Suite 850 Woodland Hills CA 91367 Fax: 1-818 332 4130

Investment Management

Edmund Harriss +44 (0) 207 233 4164 edmund.harriss@gafunds.com

Tim Guinness +44 (0) 207 222 7978 tim.guinness@gafunds.com 14 Queen Anne’s Gate London SW1H 9AA UK

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Disclosure This information is authorized for use when preceded or accompanied by a prospectus for the

Guinness Atkinson Funds. The prospectus contains more complete information including investment objectives, risks, fees and expenses related to an ongoing investment in the Fund. Please read it carefully before investing.

Mutual fund investing involves risk and loss of principal is possible. Investments in foreign securities involve greater volatility, political, economic and currency risks and differences in accounting methods. These risks are greater for emerging markets countries. The Fund also invests in smaller companies, which will involve additional risks such as limited liquidity and greater volatility. The Fund may invest in derivatives which involves risks different from, and in certain cases, greater than the risks presented by traditional investments.

Diversification does not guarantee a profit or protect from loss in a declining market.

Index performance is not indicative of fund performance.

Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security

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