Consider a Shorter Duration Approach With Emerging Markets Debt

Despite poor performance in 2022, emerging markets sovereign debt funds outperformed U.S. Treasury and investment-grade corporate bond indexes in 2023. And given resilient global conditions, including moderate inflation and a weakening U.S. dollar, EM debt could be an appealing asset.

According to BondBloxx, when investing in EM debt, going shorter with duration may be the way to go. After all, a “shorter duration approach” can “reduce both interest rate and spread duration risk.” Plus, going shorter can give investors a chance to gain decent yield.

“A shorter duration approach… offers the opportunity to invest in a diversified portfolio of global issuers, reduce both interest rate and spread duration risk in the asset class, and benefit from an attractive yield,” BondBloxx argued in its 2024 Fixed Income Outlook.

See more: “High Yield Looking Less Risky These Days

Manage Duration Exposure Better With Emerging Markets ETF XEMD

The BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD) targets short- to intermediate-term U.S. dollar-denominated EM bonds.

XEMD’s index, J.P. Morgan EMBI Global Diversified Liquid 1-10 Year Maturity Index, excludes bonds with maturities longer than 10 years. This makes the fund’s holdings shorter in duration than other broad market emerging market bond benchmarks. So, XEMD can potentially offer relative performance advantages if interest rates rise.

BondBloxx Client Portfolio Manager JoAnne Bianco highlighted the fund’s ability to better manage duration exposure with EM debt.

XEMD charges 29 basis points.

Launched in October 2021 to provide precision fixed income ETFs, BondBloxx has experienced significant growth in a short time. The nascent fixed income investment manager now offers 20 fixed income ETFs managing roughly $2.5 billion in assets. These funds cover a range of bond categories, from U.S. Treasuries to high yield (both sector– and credit-rating-specific) to emerging markets fixed income. BondBloxx has a new fund on its way.

For more news, information, and analysis, visit the Institutional Income Strategies Channel.