Keep it Short With Emerging Markets Bond ETF | ETF Trends

Emerging markets assets, including bonds, are rebounding this year. For investors that want to embrace emerging markets debt with lower duration, the ProShares Short Term USD Emerging Market Bond ETF (CBOE: EMSH) is a credible idea.

EMSH, which is higher by 2.13% this year, tracks the DBIQ Short Duration Emerging Market Bond Index. EMSH’s holdings are dollar-denominated, meaning those bonds stand to benefit as the U.S. dollar declines because financing that debt is easier when the dollar loses value.

Emerging market bonds still look attractive because the asset class took a double whammy last year after the Federal Reserve raised interest rates and the U.S. dollar appreciated against its global peers. The outlook for the asset class this year now looks very different, with the Federal Reserve hinting at easing up its interest rate hikes and the U.S. dollar now showing a weaker outlook.

“The brightening bond-market outlook shows how the weakest economic growth since the global financial crisis is boosting the case for the Federal Reserve’s dovish turn, limiting the dollar’s gains and allowing other central banks around the world to follow suit,” reports Bloomberg.


At the end of 2018, EMSH held 49 bonds with a modified duration of 2.17 years, according to issuer data. The weighted average maturity of the fund’s holdings was 2.38 years.

The rally in emerging market debt has pulled down yields significantly as bond prices increased, with the yield spreads between emerging market debt and U.S. investment-grade bonds tightening as a result. Still, EMSH has a 30-day SEC yield of 4.03%, far higher than what investors will find on domestic bond ETFs of comparable duration.

Chinese bonds represent 10% of EMSH’s portfolio while Brazilian and Indonesian debt combine for almost 15.60%.

Bank Indonesia has room to cut its policy rate as inflation has eased to a near-decade low and the rupiah is recovering,” reports Bloomberg. “Central bank Governor Perry Warjiyo reiterated earlier this month the benchmark rate is near its peak following 175 basis points of tightening in 2018. A deteriorating trade deficit, however, may deter the bank from easing any time soon as it focused on “external stability” at last month’s meeting.”

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