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How to Tap Into Developing Economies’ Credit Market

This article was originally published on ETFTrends.com.

Investors who want to tap into developing economies’ credit market have a number of options to choose from. For instance, the actively managed WisdomTree Emerging Markets Corporate Bond Fund (EMCB) can help investors add value to their fixed income portfolios.

Given the sell-off in emerging assets this year, Asian developing countries, which are among the biggest issuers of dollar bonds, have seen yields push up to their highest level in almost five years.

According to the Bank for International Settlements, developing countries have issued $2 trillion in outstanding dollar-denominated bonds, tripling the amount issued in the past decade. Still, there could be opportunity with emerging markets credit.

“Emerging market (EM) bonds could serve as an attractive diversifier, offering typically higher levels of yield, comparable credit quality and the ability to partake in the overarching global macro growth story,” said WisdomTree in a recent note. “Given all the optionality within the EM bond universe, we believe that EM corporate bonds, issued in U.S. dollars (USD), can offer an intuitive alternative to EM sovereign bonds.”

Related: An ETF of ETFs to Trim Interest Rate Risk

EMCB: Exposure to 30+ Countries

EMCB is over six years old and has an effective duration of 4.45 years. The average years to maturity on the fund's holdings is 9.53 years.

EMCB offers exposure to over 30 countries with weights ranging from 0.47% to 10.79%. Russia, Brazil and Chile combine for about 29% of the fund's geographic exposure. Chile is the highest rated member of that trio. The fund's risk profile compares favorably with widely followed emerging markets bonds benchmarks, such as the DBIQ Emerging Markets Liquid Balanced Index (DBLQBLTR) and the J.P. Morgan EMBI Global Core Index (JPEICORE).

“EMCB is approximately 67% investment grade, with less than 1% of its remaining 32% high-yield exposure coming from debt that’s rated CCC or below. However, DBLQBLTR and JPEICORE are approximately 46% and 59% investment grade, respectively, with a much larger high-yield allocation tilting toward the 'junkier' end of the credit spectrum,” according to WisdomTree.

EMCB's embedded income yield of 5.22%, which is solid, particularly when considering the fund reduces risk relative to competing strategies in the emerging markets debt category.

For more information on the fixed-income space, visit our bond ETFs category.

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