Under the Hood: And There Was Three (EMCD, CEMB, EMCB)
One of the more noteworthy themes in ETF Land this year has been the rise of emerging markets bond funds. Scores of new emerging markets bond ETFs have come to market and previously existing funds have delivered impressive performances.
The following illustrates just how impressive select emerging markets bond ETFs have been this year: In the past 90 days, the PowerShares Emerging Markets Sovereign Debt ETF (NYSE: PCY) has outperformed the much ballyhooed PIMCO Total Return ETF (NYSE: BOND) by nearly 130 basis points.
In fact, PIMCO's Bill Gross recently said bond investors "should favor quality and 'clean dirty shirt' sovereigns" such as (U.S., Mexico and Brazil).
Buoyed by positive sentiment from other experts in addition to Gross, emerging markets bond funds have flourished in number and performance this year.
Regarding some of the new kids on the block, funds offering exposure to emerging markets have finally made it onto the scene, led by the WisdomTree Emerging Markets Corporate Bond Fund (NASDAQ: EMCB). EMCB debuted in March and has hauled in more than $61 million in assets under management, making it one of the more successful new ETFs of 2012.
Five weeks later, the iShares Emerging Markets Corporate Bond Fund (BATS: CEMB) came along and that fund has been fair in terms of attracting AUM with $10.2 million.
Those that think two emerging markets corporate bond ETFs is enough should think again because EMCB and CEMB have a new rival in the form of the SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF (NYSE: EMCD).
Not even a month old, the ETF is showing it is a valid competitor to EMCB and CEMB. In fact, the SPDR offering has already raked in almost $15.3 million in AUM, putting it well ahead of its iShares rival in that regard.
Granted, the data set is small, but since the SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF started trading, it has outperformed the PIMCO Total Return ETF by 230 basis points and its iShares counterpart by almost 170 basis points.
'Me too' ETFs, and the SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF is certainly one, often find tough sledding when competing against entrenched rivals. Simply put, human nature dictates that most investors are not apt to switch to a new ETF over an older version unless the new fund really has something special to offer.
In the case of EMCD, it has one significant point in its favor: It charges 0.5 percent per year in fees. That is 10 basis points cheaper than what EMCB and CEMB charge.
EMCD features 83 holdings, a small number relative to the 461 featured in the fund's index. The ETF has a 30-day SEC yield of 3.06 percent and the index's current yield is 5.55 percent, according to data on the SPDR website.
More than 76 percent of EMCD's holdings are rated A or Baa and approximately 87 percent have maturities ranging from two to 10 years. Issues from Brazil, Russia and Mexico comprise about 45 percent of the fund's country weight while bonds issued by the United Arab Emirates, South Korea, Hong Kong, China, India and Qatar make up the rest of the fund.
Bottom line: by total return and assets attracted, there is no denying EMCD is off to a banner start. While not impossible, EMCD usurping EMCB for the title of the largest emerging markets corporate bond ETF is not probable in the near-term. However, EMCD looks like it has already trumped its iShares rival for the number two spot.
For more on emerging markets bond ETFs, click here.
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