Bond ETFs A First For EGA, TCW

January 08, 2014

Never say never in the world of ETFs, especially in the opaque bond market.

Emerging Global Advisors—the purveyor of the popular EGShares Emerging Markets Consumer ETF (ECON | D-51)—today is making a splashy start in the fixed-income space by launching a trio of emerging-market investment-grade bond ETFs with a big money manager.

Investment-grade bonds give investors a sense of security in the emerging markets, which have been under pressure since May 2013 when talk of the Federal Reserve’s tapering measures began to hurt asset prices in developed as well as emerging markets. The Fed began pulling back on its quantitative easing stimulus this month at $10 billion per month.

Moreover, EGA is giving investors exposure to a broad spectrum of bond funds, including the:

  • EGShares TCW EM Short Term Investment Grade Bond ETF (SEMF)
  • EGShares TCW EM Intermediate Term Investment Grade Bond ETF (IEMF)
  • EGShares TCW EM Long Term Investment Grade Bond ETF (LEMF)

EGA is not going at it alone.

The firm has partnered up with the TCW Group—which currently manages some $10 billion in emerging market debt spread across four active mutual funds and separate accounts—to launch the three funds.

TCW will subadvise the funds, which the two firms are touting as “the industry’s first suite of EM fixed income ETFs to provide duration-defined exposure to USD-denominated, investment grade emerging market sovereign and corporate bonds,” according to a press release.

EM debt currently offers attractive risk/reward potential, with strong fundamentals and higher yields relative to developed market counterparts, according to EGA's Founder Robert Holderith.

"We are addressing an investors need to be able to choose duration in EM debt, and are the first to market to do so," he said. " We have no plans to launch any non-investment grade bonds in the near future, but may consider them if we feel there is a market need."

The ETF space is a new market for TCW.

After all, Tad Rivelle, the firm’s chief investment officer on the bond side, told ETF Report just four months ago that the firm doesn’t use ETFs in a “meaningful way.” Rivelle said at the time that investors looking for a discount in their asset classes may find ETFs “most interesting.”

Penny Foley, a portfolio manager for the ETFs, noted that the funds will allow investors to foccus on high quality dollar denominated portfolios of sovereign and corporate debt, which is bucketed by duration.

"Given the interest of investors to tareget specific inflation buckets in this changing interest rate environment, these ETFs met a specific investor need," she said.

Foley added that since this is a new product market for the firm, there are no decisions yet to incorporate ETFs into its mutual funds or separate accounts, or launch its own ETFs going forward.


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