4 Best Emerging Market Bond ETFs YTD

April 09, 2014

A few funds stand out as investors are back to looking for value in emerging market bonds.

Investors seem to be warming up again to emerging market debt ETFs after shunning the asset class for much of 2013, an indication they’re again looking to capture some of the outsized yield this segment is known to deliver relative to other markets.

If nothing else, the wholesale selling that prevailed in this pocket of the market for months seems to have stopped, and sentiment may be turning, as investors are now looking for value opportunities in emerging market debt, Market Vectors Fixed Income Portfolio Manager Fran Rodilosso said in a commentary earlier this month.

So far, asset flows would largely confirm that trend.

“I think there are many places to look for opportunities—hard currency or local market, investment grade or high yield, sovereign or corporates,” Rodilosso said in his commentary.

Here, in ascending order, are the four best-performing emerging market bond ETFs so far this year—a mix of strategies that share only one common denominator: They all invest in dollar-denominated debt and avoid bonds denominated in local currencies.

4. The SPDR BofA Merril Lynch Emerging Market Corporate Bond ETF (EMCD | D) is up 4.25 percent year-to-date.

EMCD was launched in 2012, and tracks the BofA Merrill Lynch Emerging Markets Diversified Corporate Index. It invests in dollar-denominated debt with at least one year to maturity issued in the U.S. and in the eurobond markets by emerging market companies.

So far this year, investors have poured a net of nearly $3 million into the ETF, helping push it above $17.8 million in total assets.

At last check, EMCD allocated heavily to Brazil—20 percent of the portfolio—at a time when the Brazilian bond market is picking up steam thanks to renewed investor interest in the juicy yields these bonds deliver relative to other emerging-market and developed debt.

Russia, Mexico and China also ranked among EMCD’s top country allocations, according to data on the issuer’s website. EMCD owns South Korean debt—more than 5 percent of the overall mix.

The fund is delivering a 30-day SEC yield of 4.27 percent in a portfolio that has modified adjusted duration of 5.68 years—an option-adjusted measure of the portfolio’s sensitivity to changes in interest rates, according to data on the issuer’s website.



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