Emerging market bond exchange traded funds continue to be a popular choice with investors. They offer portfolio diversification, with the appeal of a fixed income investment.

“Over the years as investors have become more comfortable with emerging-markets bonds, issuers have lengthened the average maturity of their issues to 10-20 years. As interest rates have fallen, these bonds have done very well, but if interest rates rise substantially the long duration of these bonds will likely cause high volatility and negative returns,” Timothy Strauts, analyst, wrote in a recent Morningstar article. [Emerging Market Bond ETFs Outperform]

Government-issued emerging market denominated in U.S. dollars were the first type of this investment available. The iShares JP Morgan USD Emerging Markets Bond (NYSEArca: EMBand the PowerShares Emerging Markets Debt (NYSEArca: PCYhave about 71% of all assets in this category. Both of these funds are established and have enough assets to remain liquid. [Emerging Market Debt ETFs: High Yields, Risk Balanced Approach]

These funds do not hedge currency risk, which means that the risk is shifted to default risk. Should the issuing country be under inflationary pressure, the U.S. dollar denominated debt could be hard to fulfill, reports Paul Britt for Index Universe. [Five ETFs Hitting 2012 Highs]

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