ETF Spotlight: Emerging Market Debt
June 25th 2012 at 8:00am by Tom Lydon
ETF Spotlight on the iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSEArca: EMB), part of an ongoing series.
Assets: $4.37 billion.
Objective: The iShares J.P. Morgan USD Emerging Markets Bond Fund tries to reflect the performance of the J.P. Morgan EMBI Global Core Index, which follows U.S. dollar-denominated debt instruments issued by sovereign or quasi-sovereign entities from emerging market countries.
Holdings: Top holdings include Philippines JAN2031 4.4%, Peru MAR2037 3.2%, Brazil JAN2037 2.8%, Russia MAR2030 2.6% and Indonesia JAN2018 2.5%.
What You Should Know:
- BlackRock‘s iShares sponsors the fund.
- EMB has an expense ratio of 0.60%.
- The fund holds 127 securities and the top ten make up 25.6% of the overall portfolio.
- The ETF has an average maturity of 12.05 years and an average coupon rate of 6.79%.
- The effective duration is 7.45.
- Top bond credit ratings include BBB 16.6%, BBB- 11.1% and B+ 7.2%; the majority remains unrated 42.9%.
- EMB has a yield of 4.63%.
- The fund is up 3.9% over the past month, up 2.0% over the last three months and up 6.1% year-to-date.
- The ETF is 2.8% above its 200-day exponential moving average.
- “The underlying index tracks a portfolio of emerging-markets bonds with an average credit quality of BB,” according to Morningstar analyst Timothy Strauts.
- “Emerging markets have increased political and economic risks, which make them more susceptible to default. For the increased credit risk, investors get higher relative yields,” Strauts said.
- “EMB owns only U.S.-dollar-denominated bonds, so there is no direct currency exposure,” Strauts added. “The fund only invests in U.S.-dollar-denominated bonds because it improves the liquidity of the portfolio.”
The Latest News:
- Investors are regaining confidence in riskier assets as tensions ease in Europe and Fed continues “Operation Twist.” [An Emerging Market Debt ETF for Growth]
- According to JPMorgan Chase & Co’s EMBI Global Index, demand to own emerging market debt over U.S. Treasuries dropped 0.08% – yield contracts as demand for the emerging market bonds rise, reports Bloomberg. [State Street Adds New Corporate Bond ETF Options]
- “Investors are pinning hopes on central banks around the world to stimulate growth,” Ravi Gopalakrishnan, chief investment officer for equities at Pramerica Asset Managers, the Indian unit of Prudential Financial Inc., said in the article. “The stance taken by Europe’s leaders has to continue to keep the region’s economy in shape.”
- MSCI could demote Greece from a developed market to an emerging market, reports Carolyn Cohn for Reuters.
- “If countries start to impose stringent accessibility restrictions, these may force us to act more quickly,” Sebastien Lieblich, head of index management at MSCI, said in the article.
- A swift devaluation could pull Greece’s annual per capita income below its 2010 levels of $27,000 – MSCI requires developed markets to maintain a $15,000 income criteria.
iShares J.P. Morgan USD Emerging Markets Bond Fund
Full disclosure: Tom Lydon’s clients own EMB.
For past stories in this series, visit our ETF Spotlight category.
Max Chen 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.