Invesco PowerShares, the money management firm best known for
its Nasdaq-100 ETF (NasdaqGM:QQQ), is launching a fundamentally
weighted emerging markets local debt ETF that would join a growing
segment of the U.S. ETF market anchored by the WisdomTree Emerging
Markets Local Debt Fund (NYSEArca:ELD).
The PowerShares Fundamental Emerging Markets Local Debt
Portfolio (NYSEArca:PFEM) is linked to Rob Arnott's Research
Affiliates' fundamental index methodology, the latest to join an
extensive family of RAFI-linked PowerShares
. PFEM will cost 0.50 percent a year, or $50 for each $10,000
The fund will track the Citi RAFI Bonds Sovereign Emerging
Markets Extended Local Currency Index, which comprises locally
issued debt from 18 emerging markets economies selected through
four fundamental screens:GDP, population, land area and energy use.
The bonds are weighted annually according to each country's
composite ranking, according to the most recent prospectus.
PowerShares' take on emerging market debt will join the likes of
WisdomTree's ELD-the biggest in the space, with some $2 billion in
assets-as well as offerings from iShares and Van Eck, to name a
few. These funds cater to investor demand for yield-generating
strategies, although they bring with them currency exposure risk
beyond the usual credit- and maturity-related risks associated with
Still, the basic idea behind investing in emerging market local
debt is that the region often serves up better debt-to-GDP balances
compared with those seen in developed economies today, as well as
higher yields than comparable bonds in developed markets. Moreover,
owning debt denominated in local currencies allows investors to
benefit from any weakening of the dollar against those
ELD has seen gains of 1.25 percent year-to-date, having now
rallied just over 5 percent in the past year. The modest gains have
come as investors poured a net of $532 million into the fund since
Jan. 1, according to data compiled by IndexUniverse.
For inclusion in PFEM, bonds must have at least one year to
maturity and come from a country with a debt rating of at least
"CC" according to S&P standards or 'Ca' according to Moody's.
Countries like Brazil, China, Czech Republic, Indonesia, Mexico,
Poland and Thailand are found in the 18-country mix.
The ETF applies a representative sampling approach to
replicating its index, meaning it doesn't own all of the securities
found in the underlying benchmark.
PFEM will also join PowerShares' other emerging markets
strategy, the $2.6 billion PowerShares Emerging Markets Sovereign
Debt ETF (NYSEArca:PCY), which is a basket of dollar-denominated
government bonds that costs 0.50 percent in net expense ratio.
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