Many deem developing country debt as a “risky” investment. However, emerging market bond exchange traded funds are comprised of investment-grade credit, and a WisdomTree offering even holds a high-quality NAIC designation.
According to a press release, the WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD), which holds emerging market bonds denominated in their respective local currency, recently received a risk-based capital designation of 1 (-) from the Securities Valuation Office of the National Association of Insurance Commissioners .
“NAIC 1 is assigned to obligations exhibiting the highest quality,” according to NAIC. “Credit risk is at its lowest and the issuer’s credit profile is stable. This means that interest, principal or both will be paid in accordance with the contractual agreement and that repayment of principal is well protected.”
The office assigns credit quality designations on securities held by state-regulated insurance companies that range from NAIC 1, the highest quality, to NAIC 6, the lowest.
With a NAIC designation, ELD can now be reported as a bond security by insurers, an important distinction for risk-based capital purposes.