Emerging Global Files To Offer Bond ETFs

November 04, 2011

Emerging Global Advisors plans to add bond funds to its suite of products targeting the developed world.

Emerging Global Advisors, the exchange-traded fund firm focused exclusively on developing markets, filed regulatory paperwork to gain permission to offer fixed-income ETFs, which would add to its current permission to market equity funds.

Emerging Global is the only ETF manager with a singular focus on the developing world. It has 19 ETFs focused on a wide range of sectors and countries that target themes including energy, financials and mining. The New York-based firm has gathered a total of $528.2 million in assets, with almost half of that in the $259.3 million EGShares Emerging Markets Consumer ETF (NYSEArca: ECON).

While the emerging markets have been buffeted in recent months by shock waves coming from a developed world still digging out from the worst downturn since the 1930s, many still see the developing markets as the most prospective part of the investment universe in the coming generation. Analysts say relatively low indebtedness, increasingly stable governance and young populations all point to higher long-term growth rates in the developing world than in regions such as North America, Europe or Japan.

Emerging Global, which has been around since 2009, is banking on those views coming to pass.

With its “exemptive relief” application to market emerging markets fixed-income ETFs, Emerging Global will be entering a realm that has relatively few funds, though some have gathered significant assets. According to Index Universe’s ETF Classification System, 134 U.S.-listed emerging market equity ETFs are now on the market, compared with just nine focused on fixed income.

The biggest developing-markets bond ETF, the iShares JPMorgan USD Emerging Markets Bond Fund (NYSEArca: EMB), has $3.18 billion in assets. Its holding are dollar-denominated, a reflection of thinking in financial markets that holds that the U.S. currency lends an element of stability to a region that historically has been relatively unstable politically and economically.

Vanguard Group’s recent filing to put two international bond funds into registration, including one with an emerging market focus that’s also dollar-denominated, was a definite sign that non-U.S. bond funds are coming of age, as we wrote about in a blog titled “Vanguard Blesses Foreign Debt.”

That said, a newer class of non-U.S. bond funds has come onto the scene in the past year that have holdings denominated in local currencies. The WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD) has become the poster child for this new approach. The fund, which has gathered $1.13 billion since its launch in August 2010, allows investors to profit from any declines in the U.S. dollar.



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