ETFs indexed to dollar-denominated debt in emerging market countries have risen to lifetime highs on favorable currency winds and investors chasing yield.
Because the ETFs invest in U.S. dollar-denominated bonds, a stronger greenback has helped them outperform rivals that don’t hedge their foreign-currency exposure. [Why These Emerging Market Bond ETFs are Outperforming]
Both funds are currently yielding more than 4%.
“This fund provides low-cost exposure to a basket of emerging-markets government bonds. Low debt levels in the emerging world make defaults less likely,” investment researcher Morningstar says in a report on PCY. “Increased investor demand has lowered yields. The fund’s average credit rating is below investment grade, and the sector has had multiple defaults in the past 20 years.” [Emerging Market Bond ETFs to Consider]
EMB has been one of the top-selling ETFs the past month, hauling in $665.6 million, according to XTF.com.
iShares JP Morgan USD Emerging Markets Bond Fund
Full disclosure: Tom Lydon’s clients own EMB.