EM Bond ETFs Try to Reclaim Lost Glory | ETF Trends

Investors are picking up emerging market bond exchange traded funds, capitalizing on developing country debt as the highest-yielding fixed-income asset among global credit indices.

Polina Kurdyavko, senior portfolio manager at BlueBay Asset Management, points out that for the “first time in history,” investors are getting more yield out of emerging market investment-grade corporate debt than developed market high-yield indices, reports Kanika Saigal for Euromoney.

“We expect the asset class to deliver a positive return in 2014 based on our internally projected lower default rate – 2.1% for emerging market high-yield corporates in 2014 versus 3.1% for 2013 – and reduced volatility in US Treasury, compared with last year,” Kurdyavko added.

BlueBay believes emerging market assets show attractive valuations after the recent bout of volatility. Additionally, investors may not be exposed to too much risk as corporate creditworthiness is holding steady.

The asset manager also argues that corporate debt is somewhat insulated from currency volatility since many emerging market corporations are export-oriented with a dollar revenue stream. Moreover, others tend to hedge foreign-exchange liabilities.

“Looking at asset classes as a whole, default will be driven by cyclical overleveraged names, such as sugar credits in Brazil or the coal sector in Asia, rather than currency volatility,” Kurdyavko said. “This is partly why we expect a low default rate.”