With top 10 holdings that include exposure to companies in the Cayman Islands, Indonesia, Brazil and Mexico, this bond ETF provides diversified exposure to exotic locations that, until June, were unavailable to regular investors. Because it was just launched, daily liquidity of 15,500 shares and assets under management of just $21 million make this a satellite holding in your portfolio. But with an expense ratio of just 0.40% below the category average of 0.52%, this is the perfect place for fixed-income investors to tap into growth and yield with a little value to boot.
2. iShares Emerging Markets High Yield Bond Fund (BATS:EMHY)
This ETF is a step down in risk from HYEM, mixing 60% sovereign debt with 40% high-yield corporate debt. In spite of less risk, investors are still rewarded with a solid 4.5% yield that handily beats the 10-year Treasury note as well as investment-grade corporate bonds in the United States, which yield about 3.5%.
This is a new ETF as well, hitting the New York Stock Exchange in April. But in just six months, the average daily trading volume has risen to 27,000, while assets under management have jumped to $180 million. Fees of 0.65% are higher than the category average of 0.52%, but with limited choices in this space, only a few options are less expensive.
3. iShares Emerging Markets Corporate Bond Fund (BATS:CEMB)
CEMB corresponds to the Morningstar Emerging Markets Corporate Bond Index. This index tracks a portfolio of bonds with an average credit quality of “BB” and offers diverse geographic exposure with South Korea, Brazil and India in the top 10 country holdings. After launching in April, this ETF is still growing in popularity, with average daily volume of just 6,000 contracts and total assets under management of $21 million. An expense ratio of 0.60% makes it the most expensive ETF of the three, but as more investors catch on to the potential of emerging-market high-yield corporate bonds, this ratio is bound to fall. This ETF boasts a healthy 3.5% yield.
Risks to Consider: High-yield corporate bonds are companies with lower credit ratings and leveraged balance sheets. This leverage is a great asset in a strong economy, but can create liquidity or evensolvency issues when economic growth slows. These ETFs also have relatively low trading volume and assets under management, making it easier for big shareholders to affect the market.
Action to Take –> Emerging markets are still in the early stages of a long-term growth cycle. So buying high-yield corporate bonds from emerging markets enables investors to lock in an outsized yield with the opportunity to enjoy big capital gains in the long run. Any of these three high-yield emerging-market bond ETFs are an awesome combination of growth and income that are worthy of a place in your portfolio.
This article was originally written by Michael Vodicka, and posted on StreetAuthority.
