Into the recent “risk-on” rally, much has been made of the depressed yields that are available to investors in U.S. Treasury securities, and thus those reaching for higher yields have embraced Emerging Markets bonds over the last several years.
The largest ETF in terms of assets in the space is EMB (iShares JP Morgan USD Emerging Markets Bond) with $5.2 billion under management. The fund is split roughly 80/20 in terms of its percentage exposure to Government and Corporate Bonds issued by Emerging Markets entities.
The second largest fund in the space is PCY (PowerShares Emerging Markets Sovereign Debt Portfolio), while other issuers also have funds in the category including ELD (WisdomTree Emerging Markets Local Debt) and EMLC (Market Vectors Emerging Markets Local Currency Bond). [Yields Propel Emerging Market Bond ETFs]
Still, EBND (SPDR Barclays Capital Emerging Markets Local Bond) and LEMB (iShares Emerging Markets Local Currency Bond) also have appeared in recent years as further innovations in the space.
Nuances that the portfolio manager should look into when examining these funds is whether the ETF is denominated in U.S. Dollars or the respective local currencies of economies that have issued the bonds in a particular fund.
There may be instances, depending on that manager’s view of the direction of the U.S. Dollar relative to EM currencies, that they would favor one type of ETF in this category over another.