In a stubbornly low yield environment, fixed-income investors can turn to emerging market bond exchange traded funds to generate more attractive returns and diversify their investment portfolios.
For instance, investors can access local currency-denominated emerging market debt through the iShares Emerging Markets Local Currency Bond ETF (NYSEArca: LEMB) and Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC). Both LEMB and EMLC track a basket of relatively high quality emerging market bonds denominated in their local currencies.
LEMB has a 4.5 year duration and a 5.11% 30-day SEC yield. The ETF’s credit break down includes AA 24.3%, A 27.9%, BBB 41.2% and BB 3.8%. Country tilts included Korea 21.1%, Brazil 13.1%, Mexico 9.4%, Turkey 4.7% and Malaysia 4.5%.
EMLC comes with a 4.9 year duration and a 5.97% 30-day SEC yield. The credit quality includes AAA 5.0%, AA 3.3%, A 20.3%, BBB 41.6% and BB 9.9%. Top country allocations include Poland 9.5%, Brazil 8.8%, Malaysia 8.8%, Mexico 7.9% and South Africa 7.5%.
Additionally, investors can choose from a number of USD-denominated emerging market bond ETFs, including the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) and PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY).
EMB shows a 7.4 year duration and a 4.66% 30-day SEC yield. The ETF’s credit quality includes AA 4.4%, A 10.8%, BBB 48.0%, BB 15.8%, B 13.4%, CCC 3.0% and CC 1.3%. Country weights include Turkey 5.6%, Philippines 4.6%, Russia 5.4%, Indonesia 5.3% and Mexico 5.3%.
PCY has a 8.4 year duration and a 5.79% 30-day SEC yield. Credit quality allocations include AA 4%, A 18%, BBB 35%, B 21%, B 11%, CCC 4% and CC 4%. Top countries include Russia 4.1%, Venezuela 4.1%, Ukraine 3.8%, Latvia 3.7% and Brazil 3.6%.