The potential weakness could have a far reaching effect as more U.S. investors gain exposure to the market, with retail-oriented emerging market bond mutual funds expanding to $76 billion in assets from $12 billion since 2008, according to Thomson Reuters data. [Investors Want Emerging Market Bond ETFs]
“Many of the funds that are buying these companies don’t even know what they are buying,” Elizabeth R. Morrissey of Kleiman International Consultants said in the article. “All of a sudden, we have Joe Middle Class loading up on emerging-market bond E.T.F.s. That is a little frightening.”
Like with all investments, investors should understand how an ETF works before jumping in. For instance, the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) and PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY) provide exposure to U.S. dollar-denominated emerging market debt. Alternatively, the actively managed WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD) and the passively managed Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) for exposure to local currency denominated debt.
For more information on developing countries, visit our emerging markets category.
Max Chen contributed to this article.