On Oct. 11, the PowerShares Emerging Market Sovereign Debt Portfolio (PCY) launched, giving us another way to invest in emerging markets exchange traded funds (ETFs). Roger Nusbaum for TheStreet.com reports that it is another way to invest in emerging market bonds with less volatility than a closed-end fund. Unlike a closed-end fund, an ETF can create or dissolve shares into their component securities. This way, they rarely deviate from their net asset values (NAVs) for any significant amount of time. The word "sovereign" means that PCY will own only government debt and no corporates. With 25 holdings, it is a concentrated ETF. The countries it holds seem to be high-yielding with a little bit of active management. Deutsche Bank Emerging Markets USD Liquid Balanced Index is the underlying index, and it selects and weights 17 countries and rescreens them yearly.
Emerging market bonds generally have a low correlation to U.S. equities. They also offer the potential for bigger moves than domestic bonds because the economies of these countries are more volatile. Because PCY invests in dollar-denominated bonds, it should stay fairly liquid.
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.