A Look At The New EM Junk Bond ETF (HYEM)
The Market Vectors Emerging Markets High Yield Bond ETF (NYSE: HYEM), the latest in a rapidly growing line of emerging markets bond ETFs debuted today, becoming the third new bond fund introduced by Market Vectors since the start of April.
Investors have embraced emerging markets corporate bond ETFs, a fact highlighted by the success of newly minted funds such as the WisdomTree Emerging Markets Corporate Bond Fund (Nasdaq: EMCB) and the iShares Emerging Markets Corporate Bond Fund (BATS: CEMB). EMCB has over $60.5 million in assets under management following its March 8 debut while CEMB has over $10 million in AUM in less than a month of trading.
It would seem as though the Market Vectors Emerging Markets High Yield Bond ETF is going up against some stiff competition, but it should be noted the new ETF to focus solely U.S. dollar-denominated non-sovereign segment of the emerging markets high yield bond arena, according to Market Vectors. That segment has grown by 265% since 2003, according to Bank of America Merrill Lynch data.
"This corner of the high-yield debt market has grown significantly in recent years and investor exposure may not have kept pace," said Francisco Rodiloso, a Market Vectors Portfolio Manager, in a statement. "For investors seeking yield this is significant as USD-denominated EM high-yield corporate bonds are currently generating high yields than USD-denominated EM high-yield sovereign bonds and U.S. high-yield corporates."
Dollar-denominated corporate debt issues now account for 10% of the international high-yield debt market, according to Market Vectors. International high-yield bonds have been more correlated to emerging markets stocks than any other asset class over the years, exceeding correlations to developed market equities and U.S. large and small caps.
With an expense ratio of 0.4%, which is capped until September 1, 2013, HYEM is 20 basis points cheaper than EMCB and CEMB. HYEM tracks 272 issues with an average years to maturity of just over six years, an average yield to worst of 8.39% and an average coupon of 8.3%. Over 58% of HYEM's issues are rated BB and another 39.4% are rated B.
The fund features allocations of almost 18.4% and 10.4% to the financial services and utilities sectors, respectively. Industrials account for almost 64%, but under that umbrella are energy, media, real estate and telecom names, among others. It is anticipated that HYEM will pay a monthly dividend.
One reason why dollar-denominated emerging market corporate bond funds have proliferated so rapidly recent is the sheer growth of the market. Dollar-denominated emerging markets bonds represented $84 billion of the EM bond universe in 2003, but that number jumped to $541 billion last year according to data from Bank of America Merrill Lynch and J.P. Morgan.
HYEM's top-10 country weights are as follows: China, Russia, Indonesia, Venezuela, Brazil, Mexico, the United Arab Emirates, India, Ukraine and Turkey. The other 21 countries that are found within the new fund combine for a weight of 27.25%.
HYEM is the 49th Market Vectors ETF and the fifth new fund introduced by the firm this year. Van Eck, Market Vectors' parent company is the fifth-largest ETF issuer by assets with $25.2 billion in AUM as of the end of April.
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