Emerging Bond ETFs as a Potential Value Play

In the ongoing search for yield, exchange traded fund investors may consider diversifying with emerging market bonds to generate more attractive payouts.

Supporting the global fixed-income market, central banks have implemented zero and even negative interest rate policies, along with other accommodative measures, that have pushed yields over $10 trillion in global debt into the negative. Consequently, William Sokol, ETF Product Manager at VanEck, suggests investors may want to look at emerging market debt as a potential value play in the fixed-income market.

“Looking at the spread per credit rating provided by issuers in the emerging markets compared to high-yield in the U.S, I think the emerging market value story plays out,” Sokol said in a phone interview with ETF Trends.

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Moreover, some argue that the emerging market debt outlook looks more favorable as commodity prices, notably oil, seem to have stabilized and economic activity in some key developing countries begin to rebound.

“This cyclical recovery should start helping to slow the pace of deteriorating debt dynamics and credit quality in some of these key countries,” Claudia Calich, manager of the M&G Emerging Markets Bond Fund, wrote for Morningstar. “The question is not if the asset class is improving in quality, which it is not, but are you getting paid for owning it if the pace of deteriorating is slowing? The answer is yes, particularly in light of the search for yield given low or negative yields in a large part of the global bond markets.”