New SPDR Targets Emerging Market Debt

Today, State Street Global Advisors debuted its third fixed income ETF concentrating on emerging markets.

The SPDR Bloomberg Barclays Emerging Markets USD Bond ETF (EMHC) tracks the Bloomberg Barclays Emerging USD Bond Core Index, which, according to the prospectus, covers “fixed-rate US dollar-denominated debt issued by sovereign and quasi-sovereign emerging market issuers.”

EMHC comes with an expense ratio of 0.23% and lists on the NYSE Arca.

“Emerging market debt has seen solid growth over the last decade; however, we believe many investors may be under-allocated to this asset class. EMHC provides a convenient and cost-effective means to access emerging market debt while guarding against short-term fluctuations in the dollar,” Sue Thompson, head of SPDR Americas distribution at State Street Global Advisors, said. A press release further noted the low correlation emerging market debt has to other fixed income categories.

The underlying index includes securities with at least $500 million par outstanding, at least two years of remaining maturity and five or more years to maturity when issued, the prospectus says. Interestingly, while it’s not unusual that the fund excludes the lower tiers of junk bonds from eligibility for inclusion, the methodology also screens out the top tiers of investment-grade debt, in terms of credit quality.

As of the end of March, the underlying index included 937 issues, the document says.

The SPDR family already includes the $1.2 billion SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (EBND), which covers emerging market sovereign debt denominated in local currencies, and the actively managed $98 million SPDR DoubleLine Emerging Markets Fixed Income ETF (EMTL), which has no specific requirements around the currency denominations of its holdings. EBND has an expense ratio of 0.30%, while EMTL charges 0.65%.

“EMHC meets demand from clients who are attracted to the benefits of emerging market debt but concerned about the potential impact of local currency depreciation,” said Global Head of SPDR Product Noel Archard of the new ETF.

Contact Heather Bell at [email protected]