Assessing Emerging Market ETFs

May 06, 2019

Fixed Income Offering Opportunities

On the bond side, local-denominated bond ETFs may be about to jump as U.S. dollar strength moderates. Yes, the dollar is strong now and has been on an uptrend in the past year, but can the greenback sustain this upward momentum?

As fixed income expert J.R. Rieger, of The Rieger Report, suggests, probably not. In the face of high global political risk from the eurozone to China to Venezuela, it’s “better for the U.S. economy to have a declining dollar—more goods and services purchased by international consumers.”

Also helping local bond EM ETFs is compressed dollar-denominated yields relative to local bond yield curves that have steepened, offering investors additional yield in local currency debt relative to dollar-denominated bonds.

Consider that the iShares J.P. Morgan EM Local Currency Bond ETF (LEMB) has a current SEC yield of 6.93% while the dollar-linked counterpart iShares JP Morgan USD Emerging Markets Bond ETF (EMB) is shelling out SEC yield of 5.1%.

“There’s not too much more upside to EMB, but there is high currency risk in a weaker USD, as compared to LEMB with bond price upside and the benefit if USD weakens,” Rieger said.


Charts courtesy of


In the end, there’s no right or wrong play in emerging market ETFs. As always, it depends on what you are looking to achieve. Whether it’s to capture rapid growth, chase the consumer promise of the region, pick up some yield, or simply diversify your overall asset allocation, the market has plenty of choices for you.

Contact Cinthia Murphy at [email protected]

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