The iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) and other emerging markets bond exchange traded funds continue to entice investors seeking additional sources of yield beyond investment-grade U.S. debt and there are good reasons why this asset class could see more near-term growth.
While yields in developed economies remain depressed, with some even trading with negative yields, emerging market bonds have quickly gained traction as one of the few areas left with attractive yields.
Emerging currencies have strengthened on improving commodity prices, notably the rebound in crude oil prices, as many developing economies are major exporters of raw materials. Consequently, more investors are looking to emerging market yields, despite the risks associated with the developing economies.
There are “interesting opportunities for taking credit risk in selected emerging markets, particularly in markets such as Brazil and Mexico, where rates could come down. Compared to 20 years ago—or even just 10 years ago—emerging markets are in much better shape,” according to a recent BlackRock note.
EMB tracks the J.P. Morgan EMBI Global Core Index, a market-cap-weighted index. Potential investors should note that since it is a cap-weighted index, countries with greater debt will have a larger position in the portfolio.