SPAC Strength May Be Spilling Into High Yield Bond ETFs

An investing spike in special purpose acquisition companies (SPACs) is spilling over into high yield. One asset to consider is the actively managed Global X Emerging Markets Bond ETF (EMBD).

“The wave of cash raised by special-purpose acquisition companies is rolling into the junk debt market, aiding distressed companies and rewarding investors who own their bonds and loans,” a Wall Street Journal article said. “SPACs, also known as blank-check companies, have issued roughly $100 billion of stock this year, a record, to buy private companies and take them public. Some SPACs are targeting companies with below-investment-grade credit ratings, hoping to use their cash piles to pay down debt and grow the businesses.”

See also: The Blank-Check Boom: Analyzing the SPAC Space

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 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.

EMBD Chart

SPAC Investments Outpace High Yield

SPACs rose exponentially in 2020. Now, as the economy continues to heal, a renewed risk-on sentiment may help fuel interest in SPACs and high yield assets.

“SPACs, also known as blank-check companies, have issued roughly $100 billion of stock this year, a record, to buy private companies and take them public,” the article added. “Some SPACs are targeting companies with below-investment-grade credit ratings, hoping to use their cash piles to pay down debt and grow the businesses.”

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