Some asset classes are tailor made for active management, and that’s particularly true of emerging markets debt. Investors can put active management in emerging markets on their side with the Global X Emerging Markets Bond ETF (EMBD).
EMBD aims to provide investors with strategic exposure to the growing universe of emerging market debt. With a total market size of $26 trillion, emerging market debt represents more than 20% of the global bond market and is a common fixture in income-oriented portfolios. The Fund primarily invests in emerging market debt securities denominated in U.S. dollars, however, the Fund may also invest in those denominated in applicable local foreign currencies. Securities may include fixed-rate and floating-rate debt instruments issued by sovereign, quasi-sovereign, and corporate entities from emerging market countries.
With domestic bond yields low and the Biden Administration expected to take a more sanguine approach to dealing with China, EMBD merits consideration as a 2021 bond ETF idea.
“Global growth continued to recover from the second quarter lows on the back of large monetary and fiscal stimulus,” according to Global X research. “Risk sentiments got a boost during the fourth quarter from the promising news of vaccine developments. The prospects for less disruptive trade policy by the incoming Biden administration should help support global trade flows, which would likely boost higher risk asset prices, including emerging markets.”
Active Outperformance for EMBD
EMBD taps the expertise of tenured Mirae Asset portfolio managers Joon Hyuk Heo and Ethan Yoon, who have combined industry experience totaling more than 35 years. The portfolio managers are supported by more than 20 professionals around the globe from Mirae Asset’s Investment, Global Macroeconomic Strategy, and Emerging Markets Research Teams. EMBD’s country allocation is based on factors including, but not limited to, economic indicators and conditions, industry structure, terms of trade, the political environment, and geopolitical issues. The portfolio managers seek to identify potential corporate and sovereign opportunities in support of bolstering EMBD’s risk-adjusted returns.
EMBD, which debuted last June, is the first actively managed fund in the Global X ETF stable. There are clear benefits to its active approach.
“During Q4 2020, the Fund outperformed the Index by +131 basis points with positive contributions from both country allocations, which contributed +33 basis points, and security selections, contributing +85 basis points. We entered the fourth quarter with a cautious stance due to the growing risks of a second wave of coronavirus infections. However, when the prospects for vaccine approvals and distribution gained traction, we were able to quickly pivot to a more bullish stance by increasing the Fund’s credit risk profile,” notes the issuer.
For more on active strategies, visit our Active ETF Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.