Behind the Rush for Emerging Market Bond ETFs

October 5th at 3:00pm by Tom Lydon

It’s not just emerging market exchange traded funds (ETFs) that are in favor with investors these days. They’re also stampeding to own the debt of developing countries.

Yield-starved investors are rushing to emerging market bonds for two primary reasons: the attractive yields they offer and the expectation that those currencies will rise as developing economies leave the West in the dust, Alex Frangos for The Wall Street Journal reports. Watch out, though: if the currencies decline, the value of the bonds will, too. [Emerging Market Debt Comes into Favor.]

Foreign investors have poured $22.4 billion into emerging market bond funds so far this year, up from $3.7 billion last year, according to EPFR, a data provider that monitors fund flows. [How to Build a Bond ETF Portfolio.]

Equity funds in emerging markets have seen inflows of $50 billion. Contrast that with the $80 billion in outflows recorded by western funds up until the end of September.

There are four emerging market debt ETFs, according to the ETF Analyzer. Visit the Analyzer to sort these funds by a variety of criteria, then see what the top holdings are in the ETF Resume and pick the one that’s right for you!

  • iShares JP Morgan USD Emerging Markets Bond Fund (NYSEArca: EMB): Yields 4.8%
  • PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY): Yields 5.3%
  • Market Vectors Emerging Market Bond ETF (NYSEArca: EMLC): Yields 3.5%
  • WisdomTree Emerging Markets Local Debt (NYSEArca: ELD): Yields 4.8%

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.