There are added risks with high-yield corporate debt in the emerging world. The rising dollar is expected to cause an increase in default rates on developing world corporate debt. Analysts say the most pain could be felt by utilities, retailers, consumer goods and real estate firms whose cash flows tend to be in domestic currencies, according to Reuters.
HYEM’s weight to the utilities and consumer-related sectors is about 16%. The ETF also has relatively light exposure to countries with the worst-performing currencies. Turkey, Indonesia and Brazil combine for just 7.5% of the ETF’s weight while India is not even found among HYEM’s top-20 country exposures. One reason why HYEM has been less bad than other emerging markets bond funds is that although the ETF’s holdings are primarily dollar-denominated, China, home to one of the stronger emerging markets currencies this year, is 13.7% of the fund’s weight.
Market Vectors Emerging Markets High Yield Bond ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of JNK and TLT.