PCY, the second-largest emerging markets bond ETF, has had solid year, gaining 5.3% while adding $387.1 million in new assets. While there has been controversy this year with some emerging markets sovereign issuers, including Standard & Poor’s downgrades of Brazil and Russia to the lowest investment grades and Turkey’s ongoing spat with ratings agencies, PCY has been able to skirt much of that negativity with just a 9.1% combined weight to Turkey and Brazil and no exposure to Russian debt. [Brazil ETFs Deal With Ratings Downgrade]
Two-thirds of PCY’s portfolio is rated AA, A or BBB and the ETF has an effective duration of nine years with a 30-day SEC yield of 4.81%.
BNDX tries to reflect the performance of the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index, which includes government, agency, corporate and securitized non-U.S. investment-grade fixed income investments issued in foreign currencies but also includes a hedge to its currency exposure.
BNDX’s currency hedge should prove useful going forward if the current trend of dollar strength and falling currencies in other developed markets stays in place. BNDX utilizes one-month forward currency contracts, which are rebalanced monthly, to hedge its currency exposure. BNDX has an average duration of seven years and charges 0.2% per year, making it less expensive than 81% of comparable funds, according to Vanguard. S&P Capital IQ rates BNDX and PCY marketweight.
“Now of course instead of possibly benefiting from the security selection PIMCO and other active fund managers offer, you would have a more passive portfolio. However, in light of the relatively weak recent track record of PIMCO Total Return, perhaps you would be better suited aiming to replicate well-known benchmark,” said S&P Capital IQ.
Vanguard Mortgage-Backed Securities ETF