ProShares is best known as an ETF provider of leveraged and inverse funds and it is one of the main players in this market. However, the company has also made a big push into the unleveraged ‘regular’ ETF market as of late, launching a series of funds in this corner of the fund world over the last few weeks.
These include a global listed private equity fund, PEX, a dividend aristocrat ETFs, NOBL, and lately more bond ETFs too. This bond space has been the newest focus from the company, and it appears as if the international market is its top target in this asset class (read The Guide to International Treasury Bond ETF Investing).
Here, ProShares is zeroing in on the emerging market bond world in its latest fund launch. This newest fund, the Short Term USD Emerging Markets Bond ETF—EMSH, looks to give investors broad exposure to this often-overlooked bond type, and we have highlighted some of the key details regarding this fresh product below:
EMSH in Focus
The new fund looks to track the DBIQ Short Duration Emerging Market Bond Index and charge investors 50 basis points a year in fees after waivers. The benchmark includes only USD-denominated debt that has less than five years remaining to maturity.
The focus of the fund is on bonds issued by emerging market sovereign governments, non-sovereign government agencies, and corporations with significant government ownership. Currently, this includes just under 20 nations from around the globe, including countries in South America, Southeast Asia, the Middle East, and Eastern Europe just to name a few (see all the Emerging Market Bond ETFs here).
In terms of exposure, the Ukraine, Brazil, and Russia each take up about 10% of assets, while Turkey and Indonesia round out the rest of the top five and each make up more than 9% of assets too. In total, Europe makes up about 40% of assets, while Latin America comes in second from a regional look at 33%.
Assets are also skewed towards federal debt at about 60% of the total, though corporate debt makes up a surprisingly large 40% of the total. The breakdown between investment grade and high yield is evenly split too, while it is once again worthwhile to note that all debt is denominated in American dollars so there is no currency risk for U.S. investors in this product.
How does it fit in a portfolio?
This fund, thanks to its focus on short-term debt, could be a better choice for investors seeking low levels of interest rate risk. Additionally, since it is zeroing in on dollar-denominated bonds, there is no worry if the foreign currencies tumble against the dollar (see Top Two Emerging Market USD Bond ETFs Head-to-head).
The fund might not be appropriate for traders though, as volume and assets look to be quite light in the beginning. Additionally, it looks to have little in terms of yield as the product is focusing on the safest combination of emerging market debt (dollar denominated and short-term), though the presence of high yield securities may help to boost this a bit.
Competition and Bottom Line
There are only a handful of bond ETFs that are focused on the emerging market space available at this time. Among the most popular is the iShares JP Morgan USD Emerging Markets Bond ETF (EMB).
This product charges investors 60 basis points a year in fees, while it has over $3.6 billion in assets under management. However, the fund does have a significant component in long term holdings, while it has the majority of its assets in intermediate term debt (see Vanguard Launches New International Bond ETFs).
Many other emerging market bonds ETFs either have similar profiles or a focus on local currency debt (some have both). Given this, there might be some room for EMSH to make a name for itself, though it will certainly be a tough battle.
After all, the emerging market bond ETF world is pretty small and investor interest—save for a few products—has been pretty light. Still, if interest rates start to creep up and should foreign currencies suffer against the greenback, this product might find a decent sized following among those who want to stay in the emerging market bond ETF space with lower levels of risk.
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Read the analyst report on EMSH
Read the analyst report on NOBL
Read the analyst report on EMB
Read the analyst report on PEX
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- private equity fund