The Year’s Hottest Emerging Market Bond ETF

August 23, 2016

Demand for exposure to emerging markets has been on the rise in recent months, and one fund that has captured a lot of that interest is a fixed-income ETF, the iShares JP Morgan USD Emerging Markets Bond ETF (EMB).

So far in 2016, EMB has raked in $4.35 billion in net assets—huge inflows for a fund that has $9.7 billion in total assets today. EMB was the fifth-most-popular ETF in July based on creations, and is ranked among the 10 biggest creations we’ve seen year-to-date.

The fund’s performance has a lot to do with its popularity. Compared to the U.S. stock market and an aggregate bond strategy such as the iShares Core U.S. Aggregate Bond ETF (AGG), EMB has seen impressive gains after being stuck in a sideways rut for most of 2014 and 2015. 

 

 

But what’s also driving demand for this fund is its attractive yields at a time when most investors are warming up again to emerging markets, looking for the segment to forge a bottom.

According to emerging market expert Mark Dow, founder of Dow Global Advisors, it may be too soon to buy into emerging market equities because growth remains nonexistent in the region, but fixed income is a different story.

“My asset of choice has been emerging market local fixed income,” he recently said. “Emerging markets are going through a version of what we did with the deleveraging process. You don't want to be in the assets that rely on growth.”

“Currencies should probably stabilize; they'll go up and down a little bit, but they're not going to move dramatically,” he added. “And with emerging market local fixed income, you get the carry, and you get the interest, which you're not going to get in the equities.”

 

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