Emerging Market Debt ETFs: High Yields, ‘Risk-Balanced’ Approach
June 1st 2012 at 1:08pm by Tom Lydon
Bond ETFs continue to see heavy buying as investors look for new fixed-income options and remain wary of stocks. Now, with all the traditionally conservative bond markets at full saturation, investors are branching out to other areas, adding emerging market debt exchange traded funds.
“Flows were particularly noticeable in emerging debt, which continues to be the beta of choice for investors in search of a risk-balanced approach to higher-yielding assets,” according to Credit Suisse, reports Hannah Collins for Risk.
A BlackRock industry report revealed that among exchange traded products launched in 2011, the WisdomTree Asia Local Debt Fund (NYSEArca: ALD) was the sixth largest by the first quarter of 2012.
Emerging market debt was once restricted to pensions and other institutional investors. Later, private banks and wealth managers have been able to get their hands on it, and now, the average investor may gain access through ETFs.
“Eventually, it should make its way into the retail space,” Eleanor Hope-Bell, head of intermediaries for the UK and Nordics at State Street Global Advisors, said in the article.
Additionally, there is growing interest in emerging market debt issued under their own local currencies. According to a State Street report, local currency emerging market debt had over $1.3 trillion at the end of 2010, up more than 50% since the start of 2009.
“We see people talking on an institutional level in both the ETF and active management world about the increasing importance of local currency government debt in their portfolios,” Scott Ebner, managing director and global head of ETF product development at State Street, said.
State Street believes that local currency debt provides diversification, higher yields, potential returns from foreign currency appreciation and access to emerging market growth and creditworthiness.
- WisdomTree Emerging Markets Local Debt (NYSEArca: ELD)
- Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC)
- SPDR Barclays Capital Emerging Markets Local Bond ETF (EBND)
- iShares Emerging Markets Local Currency Bond Fund ETF (LEMB)
Still, ETF investors who do not want the added currency risk may opt for emerging market debt denominated in the U.S. dollar. [Emerging Market Bond ETFs that Hedge Currency Risks]
- JP Morgan Emerging Markets Bond Fund (NYSEArca: EMB)
- PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY)
WisdomTree Emerging Markets Local Debt
For more information on bond funds, visit our bond ETFs category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own EMB.
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.