Another Emerging Market Bond ETF Sees Assets Soar
There is no denying that investors have embraced emerging markets bond ETFs in a significant way this year. Soaring assets under management totals for these ETFs speak to their popularity with investors.
Another fund can be added to that list.
The Market Vectors Emerging Markets Local Currency Bond ETF (NYSE: EMLC) became the newest member of the $1 billion in AUM club, according to announcement made by Market Vectors late Monday. To be exact, EMLC had $1.14 billion in AUM as of the close of U.S. markets on Monday.
EMLC, which debuted in July 2010, is the second emerging markets bond ETF that tracks debt denominated in local currencies to cross the $1 billion in AUM threshold. The actively managed WisdomTree Emerging Markets Local Debt ETF (NYSE: ELD) was the first. EMLC is a passively managed product.
EMLC's ascent up the AUM totem pole, while impressive, is not all that surprising. Amid anemic interest rates on U.S. Treasuries and deteriorating credit quality in the developed world, many bond investors have been left with few options but to at least give consideration to emerging markets debt. That consideration has prompted stellar AUM growth for select ETFs.
In just over a week, the iShares Emerging Markets Local Currency Bond Fund (NYSE: LEMB), a rival to EMLC, saw its AUM total soar to over $363 million after hauling in $150 million in fresh investments. EMLC asset growth in 2012 has been impressive in its own right. As of May 7, the the ETF had $743 million in AUM.
Said another way, the ETF's AUM has jumped by over 47 percent in just seven months. EMLC's move to $1 billion in AUM status underscores another important point about ETFs: First mover advantage. The fund was the first to offer U.S. investors exposure to sovereign bonds denominated in local currencies.
Home to 212 issues with an average modified duration of 4.92 years, EMLC allocates 10 percent of its weight to each of the following nations: Brazil, Mexico, Poland and South Africa. Malaysia and Turkey appear next on EMLC's country roster. Nearly 61 percent of the fund's holdings are investment grade while almost 17 percent are non-investment grade. The remainder are not rated.
Earlier this year, Van Eck, the parent company of Market Vectors, announced a fee reduction on EMLC. The firm lowered the ETF's expense ratio to 0.47 percent annually from 0.49 percent. That move made EMLC less expensive than rival funds, including the iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSE: EMB).
EMB, which focuses on dollar-denominated issues, is the largest emerging markets bond ETF by assets and features an expense ratio of 0.6 percent per year.
EMLC has another feather in its cap. On a year-to-date basis, the ETF is the best performer of the major local currency emerging markets sovereign bond ETFs. EMLC pays a monthly dividend and has a 30-day SEC yield of 4.88 percent. The fund is the first Market Vectors bond ETF to reach the $1 billion in AUM level.
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