Additionally, emerging market debt is looking less volatile relative to developed markets, and emerging market stocks and bonds should be less volatile relative to their developed world equivalents, says Koesterich. [ETF Spotlight: High Yield Bonds]
The iShares J.P. Morgan USD Emerging Markets Bond Fund (NYEArca: EMB) features emerging markets bonds denominated in U.S. dollars. The $4.5 billion fund also charges 0.6% and yields 4.72%, according to iShares data. Brazil, Russia, Mexico and Turkey combine for about 30% of EMB’s country weight. [What Emerging Market Bond ETFs Are saying About the Market]
Also, the iShares Emerging Markets Local Currency Bond Fund (NYSEArca: LEMB) has $30.1 million in AUM, fees of 0.6% and a distribution yield of almost 4.8%. The fund launched in October 2011, gaining a fast following. The fund holds emerging markets bonds denominated in the local currencies of South Korea and Russia, which dominate the country holdings. [Emerging Market Currency ETFs]
Emerging market debt is more prone to volatility than U.S. debt, and the currency exposure can add extra risk. However, the diversification benefits and the U.S. dollar hedge make up for this.
Tisha Guerrero contributed to this article.