Fixed income investors who want to satiate their appetites for yield can opt for emerging markets (EM) using an actively managed strategy with ETFs like the Global X Emerging Markets Bond ETF (EMBD).
EMBD aims to provide investors with strategic exposure to the growing universe of emerging market debt. With a total market size of $26 trillion, emerging market debt represents more than 20% of the global bond market and is a common fixture in income-oriented portfolios.
The fund primarily invests in emerging market debt securities denominated in U.S. dollars, however, the fund may also invest in those denominated in applicable local foreign currencies. Securities may include fixed-rate and floating-rate debt instruments issued by sovereign, quasi-sovereign and corporate entities from emerging market countries.
“EMBD’s portfolio managers incorporate both top-down macro views consistent with the firm’s Investment Committee and bottom-up fundamental research to evaluate the investment attractiveness of select countries and companies that are believed to offer superior risk-adjusted returns,” Global X noted on their website. “The portfolio managers determine country allocation primarily based on economic indicators, industry structure, terms of trade, political environment, and geopolitical issues.”
“In addition, the portfolio managers conduct relative valuation analysis on sovereign and corporate issues to tactically identify potential opportunities to enhance the Fund’s risk-adjusted returns,” Global X added. “The portfolio managers may dynamically adjust the top-down and bottom-up strategies of the Fund to better reflect market developments.”
Summarily, EMBD gives investors:
- Experienced Portfolio Managers: EMBD’s portfolio managers have extensive track records in actively managed emerging market debt strategies.
- Competitive Cost: At a 0.39% total expense ratio, EMBD offers the outperformance potential and risk management of active portfolio managers, at a competitive cost. EMBD is up 6% within the past year.
- High Yield Potential: By targeting emerging market debt securities, EMBD aims to offer high yields with low correlations to other fixed income securities.
Interesting Times for EM Bond Markets
The current market environment makes for interesting times for EM bond investors. When compared to developed nations like the United States and Europe, EM is the place to be.
“When you think about the outlook for developed bond markets, it’s not really an interesting place to be invested, from a total return perspective,” said Richard Lawrence, senior vice-president of global fixed income at Brandywine Global Investment Management in Philadelphia, Pa., in a March 23 interview with Advisor’s Edge.
Additionally, stimulus packages from federal governments and supportive monetary policy by central banks will be of benefit to all countries, including EM.
“We think we’re in the beginnings of a significant cyclical upswing for the global economy,” said Lawrence, who manages the Renaissance Global Bond Fund.
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