5 Top Ideas Among Emerging Markets Bond ETFs

Yield-hungry investors are exploring other avenues for income in the bond market and that includes emerging markets debt. For example, the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) is one of this year’s top asset-gathering exchange traded funds.

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. EMB is now the world’s largest emerging markets bond fund, ETF or mutual fund.

The PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEARCA: PCY), another dollar-denominated ETF, is another emerging markets bond ETF to consider. PCY is the second-largest dollar-denominated emerging markets bonds ETF behind EMB.

“Investors are sweeping away doubts about emerging market bonds and pouring record amounts into ETFs that track these assets. Although there are four months left in the year, emerging market bond ETFs have already surpassed last years’ record inflow ($10.1bn) by more than $5bn,” according to Markit.

But with the dollar consistently struggling this year, investors are also flocking to emerging markets bond ETFs that denominate holdings in local currencies, such as the VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC).

“One particular aspect of the rush into emerging market bonds is a newfound appreciation for assets denominated in local currencies. These formerly niche funds have witnessed inflows representing 73% of their AUM since the start of the year, which is nearly twice the 41% growth registered by dollar denominated funds. Incumbent dollar denominated emerging market bond ETFs still manage two thirds of AUM, but the gap is closing fast,” according to Markit.