iShares takes on WisdomTree in providing exposure to corporate debt in fast-growing emerging market countries.
iShares, the world’s largest purveyor of ETFs, launched an emerging market fixed-income ETF that is only the second ETF on the market to provide specific access to corporate debt in developing countries.
The iShares Emerging Markets Corporate Bond Fund (BATS: CEMB), comes with a 0.60 percent total net expense ratio.
International corporate debt is a largely unexplored market that is gaining favor among investors as companies worldwide increasingly turn to debt issuance as a substitute for bank lending, which has tightened up since the markets crashed in 2008.
However, corporate debt in fast-growing emerging market countries may hold out even greater investment opportunities. Although growth in developed countries is mostly stagnant, growth in emerging markets is projected to grow at an average of 5.75 percent during 2012, according to the International Monetary Fund.
The new iShares fund comes close on the heels of the market’s first broad-based emerging market corporate bond ETF, which was launched by WisdomTree this past March. The WisdomTree Emerging Markets Corporate Bond Fund (NasdaqGM: EMCB) comes with a 0.60 annual expense ratio. State Street Global Advisors also has emerging market corporate debt fund in the works.
CEMB is linked to a Morningstar index and it will comprise U.S.-dollar-denominated debt, which is viewed by many investors as a way to control exposure to developing economies that traditionally are linked with more economic and political volatility than are developed ones.
As of March 31, 2012, the underlying index included issuers located in Brazil, Chile, China, Colombia, Hong Kong, India, Indonesia, Israel, Jamaica, Kazakhstan, Kuwait, Malaysia, Mexico, Peru, Philippines, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Thailand, Trinidad and Tobago, Turkey, Ukraine, United Arab Emirates and Venezuela. Component companies include energy, financial and industrials companies, and may change over time.
Avoiding Local Currency Exposure
By using U.S.-dollar-denominated debt, CEMB is a departure from popular emerging market sovereign debt funds, which are focused on local-currency linked exposure and are designed to benefit from any weakness in the U.S. dollar. Case in point is the $1.25 billion Wisdom Tree Emerging Markets Local Debt ETF (NYSEArca: ELD).
According to its prospectus, eligible securities in CEMB must have a minimum outstanding value of $500 million, with issuers owing at least $1 billion in aggregate outstanding debt.
The bonds must have at least 13 months to maturity at the time of rebalancing, which will take place on a monthly basis. Individual issuers are capped at 5 percent of the portfolio.