Much of the headlines surrounding emerging markets investing have been negative. Funds benchmarked to indices like the J.P. Morgan Emerging Market Bond Index Global Diversified Index has seen a year-to-date performance of -24%. But while broad emerging market bond indexes have been negatively impacted by rising interest rates and widening credit spreads in 2022, intermediate-term emerging markets have outperformed.
In this historic year for bond market losses, now may be the time for investors with taxable accounts to consider tax-loss harvesting using ETFs. Tax loss harvesting involves selling an investment at a loss, then reinvesting the proceeds of that sale into another asset.
Investors looking to maintain exposure to emerging market bonds while taking advantage of a tax-loss harvesting strategy may want to consider the BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD). The fund 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 ten years.
“XEMD is designed to give fixed income investors the ability to manage their duration exposure better 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 complete 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 U.S. and Global Aggregate Indices and the Bloomberg US Corporate Index while similar in duration to the Bloomberg US High Yield Index.
In terms of total return performance, XEMD’s index was more than 500 basis points ahead of the broad J.P. Morgan EMBI Global Diversified Index year-to-date through mid-June—and with lower interest rate risk.
Launched in October of 2021 to provide precision ETF exposure for fixed income investors, BondBloxx Investment Management was co-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.
BondBloxx has launched 19 high-yield products since February, including eight target-duration U.S. Treasury ETFs, seven industry sector-specific high-yield bond ETFs, and three ratings-specific high-yield bond ETFs, and the aforementioned short-duration emerging market bond ETF.
For more news, information, and strategy, visit the Institutional Income Strategies Channel.