Emerging Market Bond ETFs In Vogue

August 28, 2017

Yields & Performance

Consider, for example, that EMLC, a fund that owns debt issued by more than 20 EM governments denominated in local currencies, is offering a 30-day yield of 5.5%. The fund’s effective duration—a measure of how sensitive a bond’s price is to changes in interest rates—is five years.

EMB, which removes the foreign exchange volatility from the mix by investing in U.S.-dollar-denominated sovereign debt issued by emerging market countries, has a 30-day yield of 4.5% in a portfolio with effective duration of about seven years.

For comparison, the iShares Core U.S. Aggregate Bond ETF (AGG), which owns U.S. investment-grade debt, and has effective duration of about 5.6 years, is shelling out a 30-day yield of only 2.2%.

And look at the year-to-date performance of these three strategies relative to one another. Emerging market bonds, particularly local currency, are delivering solid upside:

 

 

High-Yield EM Bonds

In the high-yield space, investors are getting a 30-day yield of 5.2% in a portfolio with effective duration of 5.5 years in EMHY. The fund owns U.S.-dollar denominated high-yield debt from emerging market governments and companies led by a 22% allocation to Brazil and 11% to Turkey.

They are also getting outperformance relative to US. high-yield strategies such as the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), the largest U.S. high-yield bond ETF—albeit a fund that owns only corporate bonds. HYG has a 30-day yield of 4.8%, with effective duration of 3.5 years.

 

 

 

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