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Investors Want Emerging Market Bond ETFs


Despite concerns over developing economies, exchange traded funds that track emerging market debt continues to attract attention.

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) saw $486.5 million in net inflows over the past week, according to ETF.com data. EMB saw assets increase by $628.5 million year-to-date. [Investors Trickle Back to Emerging Markets ETFs]

Investors threw $42 billion into emerging market debt in the three months to February, even though the Fed signaled further tapering and emerging stocks tumbled at the beginning of the year, reports Arif Sharif for Bloomberg. In comparison, emerging market equities saw $2 billion in outflows over the same period.

“There hasn’t been an exit from fixed income in the way that some had been predicting,” for emerging markets, Mark McFarland, the Coutts chief economist, said in the article. “Investors are still running portfolios that seem to be a mixture of equities and fixed income rather than moving from fixed income to equities.”

McFarland argues that dollar-denominated, investment-grade bonds from China, India, Iindonesia and Mexico are attractive opportunities.

EMB tracks U.S. dollar-denominated emerging market debt, including investment-grade bonds rated AA 3.0%, A 7.6% and BBB 45.2%. The ETF has a 0.60% expense ratio and a 4.92% 30-day SEC yield.

Additionally, the PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) also provides exposure to USD-denominated emerging market debt, including investment grade bonds rated AA 4%, A 9% and BBB 48%. The ETF has a 0.50% expense ratio and a 5.12% 30-day SEC yield.

Alternatively, investors can consider the actively managed WisdomTree Emerging Markets Local Debt Fund (ELD) and the passively managed Market Vectors Emerging Markets Local Currency Bond ETF (EMLC) for exposure to local currency denominated debt. Local currency bonds can benefit from the strengthening emerging market currencies. ELD has a 0.55% expense ratio and a 5.29% 30-day SEC yield, and EMLC has a 0.47% expense ratio and a 5.51% 30-day SEC yield. [EM Currency ETF Makes a Quick Turn Around]

For more information on developing economies, visit our emerging markets category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.