One of the more obvious trends in the exchange-traded products
industry this year has been the introduction of scores of new
emerging markets bond ETFs. Whether it's corporate issues or
sovereigns, high-yield or investment-grade, investors now have
options than ever before when it comes to gaining
exposure to emerging markets debt
Two ETF firms, BlackRock's (NYSE:
) iShares and Van Eck's Market Vectors, have been leading the
charge in terms of new emerging markets bond funds this year,
though it should be noted WisdomTree has found quite a bit of
success with the WisdomTree Emerging Markets Local Debt ETF
), the WisdomTree Asia Local Debt ETF (NYSE:
) and the newly minted WisdomTree Emerging Markets Corporate Bond
When it comes to Latin American bonds, ELD has a 31.1%
allocation to the region while EMCB's LatAm exposure exceeds 51%.
The iShares Emerging Markets Local Currency Bond Fund (NYSE:
) allocates a quarter of its weight to the region while the
iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSE:
) devotes almost a third of its weight to LatAm issues.
Along those lines, iShares filed plans last week to possibly
introduce the iShares Latin America Bond Fund, which would track
an index of dollar-denominated corporate, quasi-sovereign and
sovereign debt of Latin American issuers.
That iShares won't be breaking new ground because a rival fund
already exists, that being today's "Under The Hood" candidate,
the Market Vectors LatAm Aggregate Bond ETF (NYSE:
). The Market Vectors LatAm Aggregate Bond ETF, which celebrated
its first birthday earlier this month, offers some key
differences to the yet-to-be introduced iShares product.
BONO tracks an index which is composed of external and local
currency Latin American sovereign debt and the external debt of
non-sovereign Latin American issuers denominated in U.S. dollars
or euros, according to the fund's Web site. That is to say
investors gain exposure to bonds denominated in a variety of
currencies, not just greenbacks, with BONO.
That said, it should be noted dollar-denominated issues
currently account for 60% of BONO's weight with bonds denominated
in Mexican pesos and the Brazilian real combining for another
27%. Bonds denominated in Colombian pesos receive a weight of
just over 8.3%. Exposure to the real probably isn't a good thing
these days as that currency, along with Brazilian equities, has
been hammered by Europe's sovereign debt crisis. The WisdomTree
Dreyfus Brazilian Real ETF (NYSE:
) has lost 5% in the past month.
Home to 34 issues, BONO features an average yield to worst and
an average yield to maturity of 5.99. The average yield to
maturity of the fund's holdings is 15.6 years and the average
coupon is 10.18%.
Investors might find some confusion regarding the quality of
the BONO's holdings. Moody's rates almost three-quarters of the
fund's holdings as non-investment grade, but Standard &
Poor's rates 55.4% of BONO's issues investment grade while Fitch
says over 57% of BONO's holdings are investment grade.
While BONO won't win any volume contests with average daily
turnover of less than 3,000 shares, an issue to consider because
the fund's issues may not be the most liquid either, there are
some other high points to this ETF beyond currency diversity and
exposure to rapidly growing global markets.
First, there is a decent chance countries such as Chile,
Colombia and maybe even Peru see their credit ratings boosted, an
action that would be a boon for BONO. Second, there is the matter
of income. Not only does BONO yield 5.4%, it pays a monthly
dividend, making it an alluring prospect for adventurous income
investors. Wait for BONO to move above $24 before taking a
For more on emerging markets bond ETFs, please click here
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