While emerging markets have been roiled by ongoing trade wars this year, there are still opportunities abound for investors seeking value and one of those areas is within emerging markets debt through the VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC).
The rough year in emerging market is evident in ETFs, such as the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO)–down 7.67% YTD, iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG)–down 7.3% YTD and iShares MSCI Emerging Markets ETF (NYSEArca: EEM)–down 7.78% YTD.
However, investors who are hesitant by the red prices in emerging markets ETF should view them as substantial markdowns, especially the U.S. and China settle their trade differences. This week, markets got a boost after Canada successfully agreed to revamp the North American Free Trade Agreement with the U.S. and Mexico, giving hope to emerging markets that trade wars can be further averted.
With respect to value compared to price, many of these ETFs from abroad present a profitable opportunity that can be realized, especially if China and the U.S. eventually ameliorate their trade differences by year’s end. It presents an interesting opportunity for the investor who is seeking value in terms of locating discounted assets such as those in emerging markets debt in EMLC.
“We’re seeing some pretty significant inflows back into EM local,” William Sokol, ETF Product Manager at VanEck, told ETF Trends. “It’s obviously been a tough year, but for a variety of reasons, we have investors coming back into this space.”
“Local yield are now 7.2%, which is significantly higher than where we started the year,” added Sokol. “I think you look at that in the context of fundamentals and there’s clearly some countries that are in the headlines and some that continue to be like Turkey that are suffering from certain political or economic issues, but overall, fundamentals still are relatively healthy especially compared to past periods where there have been sell-offs in EM.”
Domestic High-Yield Opportunities
Investors who are still reticent with respect to emerging markets debt can still take advantage of high-yield opportunities domestically, such as the iShares iBoxx $ High Yield Corp Bd ETF (NYSEArca: HYG) and SPDR Blmbg BarclaysST HY Bd ETF (NYSEArca: SJNK). These ETFs give investors exposure to high-yield assets without the additional credit risk that may come with emerging markets debt.
HYG tracks the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is comprised of high yield U.S. corporate bonds that have less than investment-grade quality. Investors who have been able to forego the credit risk have seen total returns of 5.49% the last three years and 1.96% the past year based on Yahoo! Finance performance figures.
SJNK seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index. SJNK invests its total assets in the securities comprising the index, which is designed to measure the performance of short-term publicly issued U.S. dollar-denominated high yield corporate bonds. The short-term maturities will help hedge some credit risk due to the lesser exposure, but holdings are still less than investment-grade. SJNK has returned 3.12% year-to-date, 4.09% the past year and 5.53% the last three years.
For more market news, visit ETFTrends.com.