Being Selective With Emerging Markets Bond ETFs

Exchange traded funds holding emerging markets debt were among the asset classes believed to be potentially vulnerable Donald Trump’s presidency.

After tumbling immediately following Election Day, the dollar-denominated funds such as the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) to local currency fare such as the Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) have been steady performers this year.

However, investors should continue taking a tactical approach to developing world debt, according to some market observers.

The PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY), another dollar-denominated ETF, is another emerging markets bond ETF to consider.

“The yield premium demanded by investors on developing-nation notes over U.S. Treasuries is likely to narrow amid an improvement in global growth prospects and risk sentiment, Goldman analysts Andrew Matheny and Sara Grut said in a note Monday. But the influential Wall Street firm — which counts several alumni among Trump’s administration — favors investment-grade bonds from Central & Eastern Europe, the Middle East and Africa,” reports Lilian Karunungan for Bloomberg.

It could be a good idea for investors to avoid debt issued by countries that Trump has mentioned in negative fashion. That would include Mexico and some other Latin American economies that could suffer if the new president is able to push through protectionist trade policies.