When considering emerging market debt ETFs, it’s important for investors to realize that some are local-currency funds. These include EMLC and ELD.
Other ETFs in the category track U.S. dollar-denominated emerging markets bonds. These include EMB and PCY.
“The emerging-markets debt space has become increasingly popular in recent years. Excellent returns over the last decade and growing distrust of developed-markets sovereigns have combined to increase the appeal of emerging-markets bonds. Emerging-markets bonds have historically proven to be a good portfolio diversifier,” says Morningstar analyst Timothy Strauts.
“The threat of higher interest rates is always a concern,” he said. “Interest-rate changes in the U.S. affect overseas investments because the world bond markets are priced in relation to the U.S. market. If interest rates rise in the U.S., emerging markets become less attractive because of their higher risk versus Treasury bonds.”
PowerShares Emerging Markets Sovereign Debt Fund
Full disclosure: Tom Lydon’s clients own EMB.