It’s a good time to be an emerging markets bond ETF.
Powered by investor demand for exposure to debt from places like Brazil and China, funds from Van Eck Global, Wisdom Tree and elsewhere have gathered assets at a crisp pace.
“There’s been tremendous demand for emerging market debt,” said Timothy Strauts, an ETF analyst with Morningstar, Inc.
Van Eck’s Market Vectors Emerging Markets Local Currency Bond ETF, launched a year ago, recently surpassed the $500 million mark in assets under management. Wisdom Tree’s Emerging Markets Local Debt ETF, also launched about a year ago, has done even better, pulling in $1.1 billion of assets.
Developing nations’ debt has been looking better and compared with alternatives in the United States and Europe, observers say.
“The debt ceiling debate has served as one more reminder that developed world debt is far from immune to negative fundamentals,” said Jan van Eck, principal at Van Eck Global, in a press release noting the anniversary of that company’s Emerging Markets Local Currency Bond ETF.
The Market Vectors and Wisdom Tree ETFs are noteworthy because they provide investors with exposure to bonds issued in local currencies. Because they’re not dollar-denominated, they give investors the chance to participate in not just interest income but also currency appreciation.
The Market Vectors ETF has returned 7.6% year-to-date, compared with 7.3% for its Wisdom Tree rival. The products differ in that the former is an index fund and the latter is actively managed.
Strauts agreed that investors are looking more closely at emerging market debt because of debt concerns in the United States and Europe.
“People are looking at places like Brazil and China and saying, ‘Hey look -- their debt is actually very little, and their GDP growth rate is high,” Strauts said. “The growth dynamics are so much more in their favor right now.”
Indeed, the debt ceiling standoff in Washington helped to drive PowerShares Emerging Mkts Sovereign Debt ETF up by 2.5% over the past five days.
“In the last week, these funds have risen very quickly,” Strauts said. “People have been moving their money to emerging market bonds.”
PowerShares’ fund, which has $1.2 billion of assets under management, is dollar-denominated, as is iShares JPMorgan USD Emerging Markets Bond Fund, which has $3 billion of assets under management.