Just about five weeks removed from the death of former
Venezuelan President Hugo Chavez, the South American country
holds its first election on Sunday since Chavez's passing.
While the South American nation is a member of the
Organization of Petroleum Exporting Countries and home to perhaps
the largest oil reserves in the world, those oil riches have not
translated to a thriving economy.
Still, a heavily impoverished nation, Venezuela is not
classified as an emerging market. In fact, index provider MSCI
stripped the country of that status in 2006
, demoting Venezuela to "standalone," a status that appears more
ominous than the frontier markets designation.
As such, accessing Venezuelan equities via U.S.-listed
is impossible. Accessing Venezuelan bonds, however, is not.
Adventurous investors have several options
for getting exposure to Venezuelan bonds with
and those funds are basically steady ahead of Sunday's
The Market Vectors LatAm Aggregate Bond ETF (NYSE:
), which holds a 7.57 percent weight to Venezuela, is trading
modestly lower today. In the case of BONO it is not surprising
that Venezuela does not really move this ETF. The fund's real
utility is as
a strong play on Mexican bonds
as that country and Brazil combine for over 63 percent of the
BONO has a 30-day SEC yield of 4.52 percent and a yield to
worst of 5.01 percent. The fund's average effective duration is
The Market Vectors Emerging Markets High Yield Bond ETF (NYSE:
) is also trading lower, though only modestly so. That ETF
features a 7.25 percent weight to Venezuela, making it that ETF's
fifth-largest country weight behind China, Russia, Mexico and
Indonesia. Interestingly, HYEM's largest and fifth-largest
holdings are issued by Petroleos de Venezuela, that country's
state-run oil producer, but even that fact has not been enough to
move HYEM ahead of Sunday's election.
More impressive about HYEM is its stunning asset growth that
hardly anyone has noticed. On December 20,
this ETF had less than $27 million in assets
. As of April 11, that number surged to $237.1 million. HYEM has
an average effective duration of 4.12 years and an average yield
to worst of 6.08 percent.
The iShares Emerging Markets High Yield Bond Fund (NYSE:
) is the one ETF that could potentially be vulnerable following
Venezuela's election results because this fund features an almost
17 percent weight to the country.
EMHY's potential vulnerability comes by virtue of the fact
that Chavez's heir apparent, Nicolas Maduro, is likely to win the
election by double-digits. Perhaps the bond market has started to
price that result in. Even if that is the case, it deals a blow
to bond traders and foreign investors that have been hoping a
change in regime would open Venezuela to more foreign investment
and economic advancement.
Turkey is EMHY's largest country weight while the Philippines
trails Venezuela. EMHY is down half a percent today, but has
gained 10.5 percent over the past year. The fund has an effective
duration of 5.97 years and a 30-day SEC yield of 5.36
For more on bond ETFs, click
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