Emerging Market Corporate Bond ETFs Trump Low Treasury Yields

November 5th at 7:35am by Tom Lydon

Low U.S. Treasury yields and a desire to diversify their bond portfolios have pushed investors to exchange traded funds that track emerging market corporate debt.

“People are still underallocated to other parts of emerging markets outside of the sovereign-credit universe,” Fran Rodilosso, portfolio manager for Market Vectors ETFs, which launched its Emerging Markets High Yield Bond ETF in May, said in a recent Wall Street Journal report.

The ETF vehicle has allowed exposure to many asset classes that were previously difficult to access for individual investors. ETFs have allowed seamless, cost-effective exposure to specific areas of the bond market, and provided superior liquidity. Companies in emerging markets have bonds that have much more room to run up and on average, most international investors prefer to purchase sovereign debt, reports The WSJ. [Six Emerging Market Bond ETFs with Attractive Yields]

Emerging market bonds offer higher yields than those in the U.S. and emerging market companies have lower debt levels, and the ability to pay off debt compared to U.S. corporations. [Finding the Best ETFs for Emerging Market Bonds]

Fixed income ETFs have gathered about $15.5 billion in assets in total, per iShares data, and the sector has gained $6 billion in new assets in 2012, reports Mark Paul for StakeBuzz. Furthermore, around 20% of the 57 fixed income ETPs trading are new funds that debuted this year. This proves that the U.S. dollar denominated bond funds are successful, and popular, despite their infancy. [Emerging Market Bond ETFs: Looking Overseas for Yield]

According to Barclays, the emerging markets corporate debt, in total, was on parity with the U.S. junk bond market, with a net asset value of $1 trillion as of May 2012.

  • Emerging Markets Corporate Bond Fund (NYSEArca: CEMB
  • Market Vectors Emerging Markets High Yield Bond Fund (NYSEArca: HYEMyields 5.64%
  • PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY) yields 4.7%
  • iShares JP Morgan USD Emerging Markets Bond Fund (NYSEArca: EMByields 4.3%

Emerging Markets Corporate Bond Fund

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.