Favorable Currency Movements
The next ETF on the top-performers list is another international fund, the iShares International High Yield Bond ETF (HYXU), with a 14.6% return. This ETF, with $67 million in assets and a 0.40% expense ratio, holds high-yield corporate bonds, primarily euro-denominated issues from Europe.
Most of the gains for the ETF came from price appreciation, as its distribution yield is only 1.35%. Moreover, most of that price appreciation came from the 11% rally in the euro against the U.S. dollar.
Indeed, the common thread shared by many of 2017's top-performing fixed-income ETFs is that they hold international bonds denominated in local currencies, something that's paid off in a year in which foreign currencies have advanced against the greenback.
The Cambria Sovereign Bond ETF (SOVB), up 12.5% this year, has benefited from that trend. It's an actively managed fund (with $10 million in assets and a 0.60% cost) that holds high-yield sovereign and quasi-sovereign bonds from around the world.
Top holdings for the fund currently include sovereign bonds from Brazil, China, Philippines and China.
Local-Currency EM Bond ETFs
Exposure to emerging market bonds has been a boon for SOVB this year, but it's not the only ETF that's ridden that wave. Four other ETFs on the top 10 list focus specifically on local-currency emerging market bonds.
The First Trust Emerging Markets Local Currency Bond ETF (FEMB), the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC), the iShares J.P. Morgan EM Local Currency Bond ETF (LEMB) and the SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (EBND) all returned between 11% and 12% so far this year. Current distribution yields for the ETFs range from 5% to 6%.
All four of the ETFs hold local-currency emerging market bonds. When the dollar drops, as it's done this year, appreciating emerging market currencies add to the returns for these funds. That's in contrast to recent years, when the dollar has advanced, hurting local-currency emerging market bond ETFs.