Fixed income investors willing to venture toward the riskier side of the yield curve can do so with emerging markets (EM) bonds. They can opt to have these bonds handpicked by a pro with the actively managed Global X Emerging Markets Bond ETF (EMBD ).
“With bond yields at or near historic lows, fixed-income investors face a choice between more risk and lower expected returns,” a Morningstar article noted. “But yields in even the riskiest sectors of the bond market are paltry by historical standards, and it is unlikely that they offer sufficient compensation for the risk they court. Emerging-markets bonds are a prime example.”
EMBD is an actively managed fund sub-advised by Mirae Asset Global Investments (USA) LLC that seeks a high level of total return, consisting of both income and capital appreciation, by investing in emerging market debt. EMBD primarily invests in emerging market debt securities denominated in U.S. dollars, however, the Fund may also invest in those denominated in applicable local foreign currencies.
Securities may include fixed-rate and floating-rate debt instruments issued by sovereign, quasi-sovereign, and corporate entities from emerging market countries. This adds a touch of diversification to an investor’s core bond portfolio.
EMBD gives investors:
- Experienced Portfolio Managers: EMBD’s portfolio managers have extensive track records in actively managed emerging market debt strategies.
- Competitive Cost: At a 0.39% total expense ratio, EMBD offers the outperformance potential and risk management of active portfolio managers, at a competitive cost.
- High Yield Potential: By targeting emerging market debt securities, EMBD aims to offer high yields with low correlations to other fixed income securities.
Investors Turning Up the Risk Dial
As global economy improves, investors’ tolerance for risk is dialing up. EM bond ETFs are seeing strong inflows as of late, showing that they’re ready to trade risk for yield.
“This sector has attracted investors’ capital as interest rates have trended lower,” the Morningstar article noted. "Exchange-traded funds belonging to the emerging-markets bond and emerging-markets local-currency bond Morningstar Categories have seen combined inflows in nine of the past 10 calendar years, amassing $29.4 billion in net inflows over that span.
“U.S.-dollar-denominated emerging-markets sovereign bonds currently offer higher yields relative to investment-grade U.S. fare,” the article added.
Investors should be well-aware of the risks that come with these financial instruments.
“Bonds issued by emerging-markets governments carry additional credit risk relative to developed-markets sovereign bonds because there is an increased amount of uncertainty surrounding their ability to honor their obligations,” the article said.
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