Fund managers are looking outside U.S. debt now for yields on junk bonds outside the country at almost double the average of the past decade, according to a recent Bloomberg report. [High-Yield ETFs Go Global]
ETF providers have taken notice and are now offering a wider range of high-yield bond funds for emerging markets. [High-Yield Bond Investors Have More ETF Choices]
The largest emerging market bond ETFs invest in sovereign debt. These funds include iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSEArca: EMB), PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY), WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD), Market Vectors Emerging Markets Local Currency Bond (NYSEArca: EMLC), SPDR Barclays Capital Emerging Market Local Bond (NYSEArca: EBND) and iShares Emerging Markets Local Currency Bond Fund (NYSEArca: LEMB). [Investors Get More ETF Options for Emerging Market Bonds]
Brown in an email Thursday said his firm Fusion Analytics currently has no direct exposure to emerging market debt, corporate or sovereign. However, the argument for these asset classes are higher yields, better demographics and better underlying economic fundamentals.
“I think the space is too new as an asset class and there are some big geopolitical risks in the many of the countries involved. Also, the market is not very deep or wide yet although improving, so I think the right approach is an active manager who can really follow this stuff closely,” Brown said.
Fusion Analytics lets ETFs “season” for at least a quarter before the funds can get into its repertoire as a rule, he added.
WisdomTree Emerging Markets Corporate Bond Fund
Full disclosure: Tom Lydon’s clients own EMB.