Emerging Market Bond ETFs Make Good Long-Term Play

Given the recent dips and supportive long-term outlook in the emerging market bond market, investors may consider local-currency emerging bond ETF strategies that focus on local currency-denominated debt, which have less default risk in periods of a strengthening USD.

“We’re clearly not seeing the outflows that hard currency funds experienced,” Sokol added. “For income seeking investors who believe in the long-term fundamental story of emerging markets, the increase in EM local currency bond yields since the election represents attractive value. Further, the higher carry that EM debt generates, whether from local or hard currency bonds, provides valuable protection and stability against the higher rates and currency volatility we’ve seen the past few weeks.”

Investors can gain broad exposure to yield-generating emerging market local currency bonds through ETF offerings. For instance, the VanEck Vectors Emerging Markets J.P. Morgan EM Local Currency Bond ETF (NYSEArca: EMLC) has a 6.02% 30-day SEC yield. Its top country exposure include Poland 9.4%, Brazil 8.7%, Indonesia 8.6%, Mexico 8.6% and South Africa 7.8%.

The iShares Emerging Markets Local Currency Bond ETF (NYSEArca: LEMB) has a 5.40% 30-day SEC yield. Top country weights include South Korea 20.5%, Brazil 14.0%, Mexico 6.7%, Czech Republic 4.5% and Indonesia 4.5%.

The actively managed WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD) has a 7.35% 30-day SEC yield. The fund’s largest weights include Brazil 10.9%, Russia 10.6%, Thailand 10.4%, South Africa 7.2% and Mexico 7.0%.

The SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (NYSEArca: EBND) has a 5.40% 30-day SEC yield. The top country components include Brazil 12.7%, South Korea 12.4%, Mexico 8.4%, Indonesia 7.5% and Malaysia 7.5%.