Six Emerging Market Bond ETFs with Attractive Yields
October 14th 2012 at 6:11am by Tom Lydon
With attractive growth prospects and improving credit in the developing world, emerging market sovereign debt related exchange traded funds have garnered a lot of attention as investors seek yield generating assets.
Overall, emerging market funds attracted $1.7 billion in assets over the past week, up from $1.1 billion the previous week, with bond inflows hitting a 35-week high, reports Erin McCarthy for the Wall Street Journal. [Emerging Markets Bond ETF Rakes in $400 Million]
Emerging market bond funds denominated in major currencies, like the U.S. dollar, brought in $966 million. Local-currency bond funds, which are denominated in the issuing country’s local currency, saw their highest inflows in over a year, adding $673 million in assets, according to EPFR Global.
“Emerging markets are starting to look relatively good again because their growth rates are that bit higher, and a lot of them have that bit more room to do something to help their economies,” Cameron Brandt, EPFR director of research, said in the article.
With benchmark 10-year Treasury yields hovering around 1.65%, investors have included more emerging market bond assets. Luz Padilla, a portfolio manager for the DoubleLine emerging markets fixed- income fund, even believes investors are considering emerging market bonds as a “true substitute” for investment-grade bonds, Reuters reports.
“The emerging-market story is more than just about ‘yield,’” David Robbins, portfolio manager for TCW Emerging Markets strategies, said in the Reuters article. “It is a long-term credit improvement story.”
Emerging market assets in general have been a hot draw. On the equities side, emerging market equity funds garnered $828 million, which suggests greater investor confidence and increasing risk appetite. For instance, the iShares MSCI Emerging Markets (NYSEArca: EEM) has brought in $1.6 billion and Vanguard MSCI Emerging Markets (NYSEArca: VWO) added $11.5 billion in new assets year-to-date, according to IndexUniverse.
Investors can choose from the U.S. dollar-denominated emerging market bond funds.
- iShares JPMorgan USD Emerging Markets Bond Fund (NYSEArca: EMB): 3.45% 30-day SEC yield
- PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY): 4.18% 30-day SEC yield
Moreover, investors can also take a look at local currency denominated ETFs. If the U.S. dollar begins to appreciate, local currency bond funds may see lower returns.
- WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD): 3.96% 30-day SEC yield
- Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC): 5.14% 30-day SEC yield
- SPDR Barclays Capital Emerging Markets Local Bond ETF (NYSEArca: EBND): 4.71% 30-day SEC yield
- iShares Emerging Markets Local Currency Bond Fund (NYSEArca: LEMB): 4.10% 30-day SEC yield
For more information on the emerging markets, visit our emerging markets category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own EMB.
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