Spotlight on Market Vectors Emerging Local Currency Bond ETF: A Great Bond Portfolio Diversifier

Jul.26.11 | About: VanEck Vectors (EMLC)

ETF Spotlight on Market Vectors Emerging Markets Local Currency Bond (NYSEARCA:EMLC), part of an ongoing series.

Assets: $444.6 million.

Objective: The ETF tries to reflect the performance of the J.P Morgan GBI-EMG Core Index, which provides exposure to local currency bonds issued by emerging market countries. The ETF benefits when emerging markets currencies appreciate against the U.S. dollar.

What You Should Know:

  • EMLC has an expense ratio of 0.49%.
  • Country allocations include: Brazil 10.0%, Poland 10.0%, South Africa 10.0%, Mexico 10.0%, Turkey 9.7%, Malaysia 9.2%, Indonesia 7.8%, Russia 7.5%, Thailand 7.0%, Hungary 5.8%, Colombia 4.1%, Chile 3.0%, Peru 3.0% and Philippines 3.0% – individual country exposure is capped at 10% “to provide more diversification among countries within the index,” according to manager Van Eck.
  • The fund is a diversifier away from the U.S. dollar and also a source for yield.
  • “With EMLC, investors can add a transparent, cost-efficient means of gaining exposure to the emerging market debt universe, with the added potential benefits of local currency appreciation as well,” Van Eck says.
  • “As the developed world grapples with credit downgrades and negative fundamentals, the outlook for emerging market credit is positive on the back of individual emerging markets countries that have worked to strengthen economic policies and improve their credit profiles,” the firm said.
  • The ETF “is an appropriate satellite holding for high-risk-tolerant investors who are optimistic about the economic and fiscal health of emerging-markets countries and who expect emerging-markets currencies to appreciate against the U.S. dollar,” said Morningstar analyst Patricia Oey in a profile of the fund. “Fundamentals for this asset class have improved significantly over the past few years. In most emerging markets, levels of external debt have fallen, central banks have become more independent, inflation is stable, banks are healthy, and government balance sheets are now healthier than those of developed countries.”

The Latest News:

  • Baring Asset Management predicts pension funds will have a heavier emphasis on emerging market local debt, reports Gary Howes for Director of Finance Online.
  • “Emerging market local debt has produced attractive risk-adjusted returns so far this year and has proved resilient,” said Thanasis Petronikolos, Head of Emerging Market Debt. “Capital inflows to emerging markets are strong and rising, and improving fiscal and debt profiles continue to underline the credit quality of most emerging market economies.”
  • “Furthermore, the fundamentals in many emerging market economies are favorable due to the region’s strong economic growth potential as well as the relative strength of the banking systems and sovereign balance sheets,” added Petronikolos in the report.
  • In addition, the low yields in other fixed-income assets has also improved demand.

Market Vectors Emerging Markets Local Currency Bond

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Max Chen contributed to this article.

Disclosure: None