Investors now have a plethora of choices for fixed income in
the ETF world. There are options that focus in on various
subsectors of the U.S. bond market, while international products
have also seen big inflows as well.
One especially intriguing segment that many have overlooked is
in the emerging market space, specifically for sovereign debt.
Funds in this segment are usually tiny (or non-existent) portions
of broad bond
, and thus are probably not in many investor portfolios (see
3 Excellent ETFs for Income Investors
This is unfortunate, as emerging market sovereign debt ETFs
generally are sporting impressive yields (above 3.8%), have great
diversification benefits, and the underlying nations generally
are in a solid fiscal position. Furthermore, due to relatively
high rates in emerging markets, their central banks have greater
policy flexibility to either tame inflation or reduce rates and
boost bond prices in the process.
Best of all, there are even several options that provide
investors exposure to dollar-denominated securities, a great
choice when the dollar is seeing strength. This situation helps
to prevent currency risk, and could lead to outperformance over
local denominated debt when emerging market currencies are
Emerging Market Bond Picks
Two great options in this space are the
JP Morgan USD Emerging Markets Bond Fund (
PowerShares Emerging Markets Sovereign Debt Portfolio (
. These two are somewhat similar, but there are few key
differences that investors should be aware of before choosing
between the two for exposure.
First, PCY is a bit cheaper and a better yielder, with fees of
just 50 basis points and a yield of 4.25% in 30 Day SEC terms.
This compares favorably to EMB's 59 basis point cost, and its
slightly less robust 30-Day SEC payout of 3.8%.
However, it is also worth noting that EMB is a bit more
focused on intermediate term securities, and that its interest
rate risk is a bit less. This could make EMB a bit safer than
PCY, although this obviously reduces the overall payout (also
Zacks Top Ranked Bond ETF in Focus
For more information on emerging market bonds, and these two
ETFs, watch this short video on the subject below:
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ISHARS-BR AG BD (AGG): ETF Research Reports
VANGD-TOT BOND (BND): ETF Research Reports
ISHARS-JPM EM B (EMB): ETF Research Reports
PWRSH-EM SVN DP (PCY): ETF Research Reports
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