Institutional investors hold significant sway in global markets, often moving large amounts of assets in single moves. As such, knowing where institutionals are going next can be a valuable investing datapoint for other investors and advisors. According to a recent survey by Vontobel, institutionals are turning their attentions to emerging markets debt for its notable yields.
With yields as high as 7% for emerging markets corporates, those institutional investors may have a case. Per the survey, institutional investors held the most exposure to emerging market corporates compared to other EM debt instruments. U.S. rate hikes and a stronger dollar had threatened the case for emerging markets debt, yes. However, a “soft landing” for U.S. inflation looks set to limit how far the Fed may have gone with rate hikes.
That gives emerging markets-curious investors the green light to take a closer look. With some nations particularly in South America still riding higher rates to fight inflation themselves, yields are responding. That opens the door for an emerging markets debt ETF like the WisdomTree Emerging Markets Corporate Bond Fund (EMCB).
See more: “The Case for Non-U.S. Allocations”
EMCB actively invest in emerging markets debt, particularly in corporates. The ETF recently hit its five year anniversary, focusing on dollar-denominated debt for a 60 basis point (bps) fee . That compares well to a peer fund like the KraneShares Asia Pacific High Income Bond ETF (KHYB) which charges 69 bps.
EMCB has outperformed its FactSet Segment Average on both a YTD basis and over the last month. The strategy has also returned nearly 8.4% over the last year, compared to just 7.3% for its Factset Segment Average. Interestingly, the ETF has also been sending a buy signal for the last several weeks based on its technical indicators. The ETF’s 50-day Simple Moving Average (SMA) has sat above its 200-day SMA for months, with its price recently rising above both markers.
Furthermore, the active EM debt ETF deserves an additional look for its active approach. Its managers can give each debt security its due attention thanks to their active remit, leveraging their knowledge about emerging markets overall. With institutionals looking abroad at emerging markets debt, it may be worth keeping an eye on an ETF like EMCB.
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