Use XEMD for Shorter Duration Emerging Markets Debt Exposure

While emerging markets debt was among the worst-performing fixed income asset classes in 2022, investors are becoming more bullish on the sector this year. Following China easing up on its zero-COVID policy, data from BofA Global Research show that investors pumped a record $12.7 billion of capital into emerging market debt and equity funds for the week ending Wednesday, January 18.

According to BondBloxx Investment Management, the negative total return performance was largely rates-driven due to their long-duration profile. For this reason, the fixed income specialist advises investors seeking emerging markets debt exposure to consider the short duration.

“A shorter duration approach to EM investing continues to be our recommendation to reduce both interest rate and spread duration risk, as a shorter duration approach has outperformed during historical market drawdowns,” according to the BondBloxx 2023 Fixed Income Market Outlook.

The BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD) seeks to track the investment results of an index composed of short- to intermediate-term U.S. dollar-denominated, emerging market bonds by excluding bonds with maturities longer than 10 years.

“XEMD is designed to give fixed income investors the ability to better manage their duration exposure when investing in emerging markets debt,” said JoAnne Bianco, client portfolio manager at BondBloxx.

XEMD’s index, the J.P. Morgan EMBI Global Diversified Liquid 1-10 Year Maturity Index, was built without making significant country or sector deviations from the full index. The index is also shorter in duration than other broad market emerging market bond benchmarks, resulting in potential relative performance advantages during a rising rate environment.

In comparison to the broad J.P. Morgan Emerging Market Bond Index Global Diversified Index, the J.P. Morgan EMBI Global Diversified Liquid 1-10 Year Maturity Index is roughly 2.75 years shorter. It’s also materially shorter than Bloomberg’s US and Global Aggregate Indices, as well as the Bloomberg US Corporate Index, while similar in duration to the Bloomberg US High Yield Index.

XEMD is one of 19 fixed income ETFs that BondBloxx has launched since February 2022, which also include seven industry sector-specific high yield bond ETFsthree ratings-specific high yield bond ETFs, and eight target-duration U.S. Treasury ETFs.

Launched in October of 2021 to provide precision ETF exposure for fixed income investors, BondBloxx was founded by ETF industry leaders Leland Clemons, Joanna Gallegos, Tony Kelly, Mark Miller, Brian O’Donnell, and Elya Schwartzman. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

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