Investors traditionally accessed emerging market debt through U.S.-dollar-denominated offerings. However, more are turning to the growing local currency bonds market.
For instance, the Market Vectors Emerging Markets High Yield Bond ETF (NYSEArca: HYEM), which has a 7.15% 30-day SEC yield, targets USD-denominated speculative-grade emerging-market bonds. Consequently, the ETF negates the effects of currency risks. The Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC), which has a 4.16% 30-day SEC yield, tracks emerging market bonds denominated in the local currencies, or in the currency of the issuing country, which may expose investors to currency risks.
The broad Market Vectors Emerging Markets Aggregate Bond ETF (NYSEArca: EMAG), which has a 4.51% 30-day SEC yield, includes a combination of U.S. dollar-, euro- and local currency-denominated bonds.
Alternatively, investors can include targeted exposure with the Market Vectors Renminbi Bond ETF (NYSEArca: CHLC), which has a 2.69% 30-day SEC yield. CHLC tracks Chinese Renminbi-denominated bonds.
“EM high yield corporate bonds can be a complement to other fixed-income and equity asset classes,” Rodilosso said. EM high yield corporate bonds, though, have been “historically more volatile than U.S. high yield markets, but has offered differentiated yield and return potential.”
Financial advisors who are interested in learning more about investing in emerging market bond ETFs can listen to the webcast here on demand.