Emerging Market Sovereign Debt ETF: Great Returns, Minimal Correlation

Powershares has launched a new ETF which tracks the Deutsche Bank Emerging Market U.S. Dollar Balanced Liquid Index. This is a rather long name, so here are the basics:

the name of the ETF is PowerShares Emerging Markets Sovereign Debt Portfolio (PCY). By sovereign, it means it invests only in government bonds and not corporate bonds. The countries in which it holds bond positions are generally relegated to the emerging (high yield = high risk) arena, but in holding at least 17 positions, it's well diversified. I've listed some country details below.

To date, I haven't been involved in bonds much as I have previously found them to be boring and I also didn't understand them very well. Recently, in completing an MBA course in bond pricing and simultaneously reading the press release on this new ETF, I thought I'd check it out. The nice thing about this index it is has a low/negative correlation to the U.S. market and it still seems to have impressive returns, more than doubling in the past 4 years. I have had some difficulty in finding the actual daily close data for the index to generate a true correlation coefficient like I've done for some other holdings here, but based on the recent performance, albeit brief, it's evident PCY is not correlated with SPY, the S&P500 ETF.

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Here's a listing of some top country holdings:

REPUBLIC OF SOUTH AFRICA
UKRAINE GOVT
REPUBLIC OF URUGUAY
REPUBLIC OF BULGARIA
SOCIALIST REP OF VIETNAM REPUBLIC OF EL SALVADOR
RUSSIA FEDERATION
BRAZIL FEDERATIVE REP TURKEY
REP REPUBLIC OF PERU

More on Emerging Market ETFs.

Comments

[R. Richard ...:]

Stockcharts.com will give you the daily results on its "gallery view section. While this is a subscription service, it does offer some level of free access.

2007 Dec 23 12:05 PM