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Alright, we all know the story. The start that emerging market ETFs have gotten off to in 2011 has been less than exciting. That's certainly the case for ETFs tracking emerging stocks, but the scenario is little better for bond funds. It's not hard to identify one of, if not the biggest challenges, facing emerging market bond ETFs so far this year: Inflation.
The situation in Egypt hasn't helped matters, but emerging market debt managed to hold steady against comparable U.S. Treasuries this week, the Wall Street Journal reported. That's not an invitation to run out and embrace EM debt right now, but the asset class may have its day in the sun once again, and the WisdomTree Emerging Markets Local Debt ETF
ELD and the PowerShares Emerging Markets Sovereign Debt ETF
PCY, the two contestants in today's ETF Showdown, could be worth a look when that day arrives.
There are obvious differences investors need to be aware when evaluating ELD and PCY. ELD tracks debt that is NOT denominated in U.S. dollars. PCY tracks EM debt that is denominated in greenbacks.
There are differences at the country level as well. ELD tracks debt issued by Brazil, Chile, Colombia, Mexico, Peru, Poland, Turkey, South Africa, Russia, Malaysia, Indonesia, Philippines, Thailand, and South Korea. PCY's top-10 country allocations are as follows: Ukraine, Turkey, Panama, South Africa, Brazil, Uruguay, Russia, Venezuela, Qatar and Indonesia. In other words, there's plenty of speculative fare mixed with more conservative issues in both ETFs.
PCY gets the nod in terms of expense ratio with fees of 0.5%, besting ELD's expense ratio of 0.55%. The difference in effective duration should also be noted by investors. PCY's is 8.16 years while ELD's is 5.13 years. Both funds have proven adept at attracting assets as PCY has $873.4 million in assets under management while ELD has almost $628 million.
While PCY has more assets, it is also almost three years older than ELD. Looking at the performance of the two funds over the past six months, ELD's age, ELD is flat while PCY is down 5%. That's not the deciding factor though. ELD wins this showdown on the basis that it ought to be the better performer when risk appetite returns in a big way because it does not offer exposure to the greenback.
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Posted In: Long IdeasNewsBondsShort IdeasWall Street JournalEmerging Market ETFsIntraday UpdateTrading IdeasETFs
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