3 ETFs For Surprise Drop In The Dollar

March 28, 2017

 

VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC)

The VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) is the second-largest emerging market bond ETF on the market, with $3 billion in assets under management, but it's often been overshadowed by the $9.8 billion iShares JP Morgan USD Emerging Markets Bond ETF (EMB).

If the dollar keeps dropping, that could change. The main difference between EMLC and EMB is that the latter invests in dollar-denominated emerging market bonds, while the former invests in local-currency emerging market bonds.

When the dollar is rising―as it's mostly done during the last few years―EMB will have superior returns to EMLC as depreciating emerging market currencies take a bite out of returns for the local-currency fund.

But if the dollar drops, the opposite will be the case. Appreciating emerging market currencies will add to the returns for EMLC. That's what's happened so far this year, with EMLC up 6.8%, compared to 4% for EMB. If the downturn in the greenback has more room to run, expect more outperformance for EMLC.

YTD Returns For EMB, EMLC

Contact Sumit Roy at [email protected]

 

 

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