Emerging markets bonds, including those denominated in local currencies, are among this year’s best-performing asset classes as fixed income investors continue scouring the globe for more enticing yields.
Dollar-denominated funds such as the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) to local currency fare such as the VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) have been steady performers this year.
EMLC, which holds bonds denominated in local currencies, allocates over 20% of currency weight to bonds from Central and Eastern European issuers. Poland is that ETF’s largest country weight, followed by Mexico.
Investors can look to overseas assets or corporate debt to bolster yield generation. For example, investors have a number of ways to gain exposure to the high yielding emerging bond market, such as the broad VanEck Vectors Emerging Markets Aggregate Bond ETF (NYSEArca: EMAG) and the VanEck Vectors Emerging Markets High Yield Bond ETF (NYSEArca: HYEM), in addition to EMLC.
While there are concerns over potential protectionist policies that could leave emerging countries out to dry, emerging market fundamentals, like growth, debt stock, real rates and policy flexibility, all remain at a favorable starting point relative to developed economies going forward this year.