Hungry For Yield? Try Emerging Markets, Says ETF Strategist

The coronavirus is helping to keep already-low yields even lower as more investors pile into bonds, thus driving prices up. For fixed income investors, this means looking to other corners of the bond market aside from safe haven government debt in the U.S., which means looking overseas as an option.

Even though the coronavirus is wreaking havoc on emerging markets assets as of late, it presents a value option to take a closer look at the debt associated with EM. With the Federal Reserve staying put at its last interest rate policy decision, the low-interest rate environment could persist.

“We do believe rates are staying lower,” Armando Senra, head of iShares Americas at BlackRock, said in the same “ETF Edge” interview. “That’s why we’re also recommending emerging market debt [and]high yield as a way to pick up in yield, again, because we have a moderate-constructive view on market risk. What I would say is … with fixed income ETFs, what you see is the replacement of bonds for fixed income ETFs.”

High Yield Options Overseas

For investors seeking high-yielding income and emerging markets exposure, they can look to the VanEck Vectors EM High Yield Bond ETF (NYSEArca: HYEM). HYEM seeks to replicate the ICE BofAML Diversified High Yield US Emerging Markets Corporate Plus Index, which is comprised of U.S. dollar denominated bonds issued by non-sovereign emerging market issuers that have a below investment grade rating and that are issued in the major domestic and Eurobond markets.

Another option for yield via international debt is the Vanguard Total International Bond Index Fund ETF Shares (NasdaqGM: BNDX). BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds.

BNDX employs an indexing investment approach designed to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). This index provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.

One more option to consider in the EM bond market is the Invesco Emerging Markets Sovereign Debt ETF (NYSEArca: PCY). PCY seeks to track the investment results of the DBIQ Emerging Market USD Liquid Balanced Index .

PCY generally will invest at least 80 percent of its total assets in U.S. dollar-denominated government bonds from emerging market countries that comprise the underlying index. The underlying index PCY tracks measures potential returns of a theoretical portfolio of liquid emerging market U.S. dollar-denominated government bonds.

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