Six Emerging Market Bond ETFs with Attractive Yields

October 14th 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.

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.