Helping fixed-income investors diversify portfolio holdings with international exposure, Invesco PowerShares plans to launch a local currency emerging market bond exchange traded fund.
The PowerShares Fundamental Emerging Markets Local Debt Portfolio (NYSEArca: PFEM) will begin trading Thursday, May 9. The fund has a 0.50% expense ratio and provides yield distributions monthly.
PFEM is linked to Rob Arnott’s Research Affiliates’ fundamental indexing methodology – the ETF passively tracks the index, but the benchmark is a type of rules-based index that mimics actively managed strategies.
The ETF will try to reflect the performance of the Citi RAFI Bonds Sovereign Emerging markets Extended Local Currency Index, which includes emerging market debt and weights holdings based on a country’s population, GDP, energy consumption and land area.
“This approach breaks the link between portfolio weight and any over- or undervaluation, creating the potential for more efficient portfolio,” according to an emailed note.
In contrast, a market-cap weighted methodology would overweight countries that issue more debt.