Why investors should look at emerging market bonds
More and more analysts are paying attention to emerging market bonds. They and related exchange-traded funds have higher volatility than their domestic fixed-income counterparts. These bonds offer good yields, which may be of interest to investors.
The J.P. Morgan Global Underlying Index has highlighted the potential of these bonds in 2023. The latter has outperformed the Bloomberg US Bond Index by almost 3 to 1. This result has narrowed the spreads between emerging market debt and Treasuries. However, analysts say there are other benefits to emerging market debt.
Global analysts expect the Fed to cut interest rates during 2024. However, many overlook that regulators in some emerging markets have already done so. Moreover, central banks are not stopping and have pledged to continue their policy of lowering borrowing costs. These processes are positive for the bonds of these countries and the related ETFs. The opportunities in these debt instruments will be of interest to fixed-income investors.
Which ETFs could be of interest to investors?
The BondBloxx JP Morgan USD Exchange Traded Fund (XEMD) contains emerging market bonds. It includes securities with maturities between 1 and 10 years. Although the ETF has existed for almost 2 years, it has not gained widespread popularity. However, as bond yields rise, its prospects are excellent. Its key metrics:
– assets under management are about USD 192 million;
– the fund offers a cheap investment option with an annual expense ratio of 0.29%;
– XEMD has a total of 308 bonds;
– more than 29% of these bonds have maturities between 7 and 10 years.
This fund includes bonds from various countries and will soon add new ones.
Another promising ETF is VanEck Emerging Markets (HYEM). It focuses on junk-rated corporate bonds from emerging market companies.
HYEM involves working with risky assets. However, it makes up for this with a 30-day SEC yield of 7.96%. Analysts also promise stability, clean issuance and good spread support.
Vanguard Emerging Markets (VWOB) manages government bonds. It is one of the largest and best-performing ETFs on the market. Its features:
– annualised expense ratio of 0.20%;
– it offers more than 700 dollar-denominated bonds;
– more than 54% of the bonds are rated AA, A or BBB.
VWOB includes bonds from Turkey, Saudi Arabia, Mexico and other countries.
