Exchange traded funds offering exposure to emerging markets debt, both of the dollar-denominated and local currency varieties, are among this year’s most downtrodden funds. Spooked by increased borrowing costs for developing economies that lived off the fat of the Federal Reserve’s ultra-loose monetary policy, investors have not been shy about pulling cash from emerging markets bond funds.
Of the 10 worst ETFs in terms of year-to-date outflows, four are bond funds and one is the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB), which has lost nearly $2.3 billion in assets since the start of the year. That is nearly triple the amount pulled from the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY). [A Splash of Kardashian for EM Bond ETFs]
There are signs the outflows trend is starting to reverse for developing world bond funds. For three straight weeks, emerging markets equity funds have seen positive flows and bond ETFs are finally getting a piece of that action. “For the week ending September 25, $0.56 billion, or 0.2% asset under management (AUM), went into EM bond funds. Hard currency funds benefited the most from the improved sentiment, seeing $0.37 billion, or 0.4% AUM, flowing in. Local currency bond funds turned the corner too, with $0.19 billion inflow,” Barron’s reported citing Barclays.
News of inflows, no matter how small, to emerging markets bond funds, is a departure from recent news pertaining to the asset class. Barclays data showed over $2 billion was pulled from emerging markets bonds ETFs during the last week of August, up from $1.3 billion in the prior week. [For the Brave, EM Bond ETFs Offer Opportunity]