Market Overview

Bond ETFs Resisting Chavez Rumors Yet Again

Rumors of Venezuelan President Hugo Chavez's death are back. On Thursday, Vice President Nicolás Maduro, Chavez's likely successor, took to Venezuelan television to ward off speculation of the president's passing.

That came a day after CNN Chile, citing a Panamanian diplomat, reported that Chavez had passed away.

Maduro did say Chavez "is battling there for his health, for his life, and we're accompanying him," according to The Atlantic. While two months of ongoing health woes for Chavez may seem ominous and increase speculation that the long-serving Venezuelan leader is not alive, the headlines are not having much of an impact on the ETFs that hold debt issued by the South American nation.

That is a repeat of performances previously seen on news of Chavez's frail condition. In December when Chavez went to Cuba to receive cancer treatment, bond ETFs with Venezuela exposure did not move much on the news and that is the case again today.

For example, the iShares Emerging Markets High Yield Bond Fund (NYSE: EMHY) is down fractionally on volume that appears poised to finish below the daily average. The 11-month old iShares Emerging Markets High Yield Bond Fund features a 17.45 percent weight to Venezuela. That makes Venezuela the largest country weight in the fund and EMHY the ETF with by far the largest exposure to the country.

While it may not be interesting that the Chavez speculation is not doing much to impact EMHY, there are a couple of compelling factoids pertaining to this ETF. First, the ETF's exposure to Venezuela has increased by about 200 basis points since late December. Second, despite all the chatter about the high-yield bond market bubble on the cusp of bursting, EMHY's assets under management tally has surged 33 percent in the past three months.

EMHY has an effective duration of 5.97 years and an average yield to maturity of 6.04 percent, according to iShares data.

The Market Vectors LatAm Aggregate Bond ETF (NYSE: BONO), which features a 7.75 percent allocation to Venezuela, is up by half a percent today. Like EMHY, BONO's volume is positioned to be well below the daily average.

BONO's resistance to Venezuela news is not unusual. No Venezuelan issues are featured among the ETF's top-10 holdings and BONO has earned a reputation as being an avenue for tapping less risky Latin American debt, such as Mexican bonds. With an average effective duration of 6.35 years, BONO is another foreign bond ETF that has grown rapidly. The fund spent much of last year with less than $10 million in assets, but now has almost $26 million.

The Market Vectors Emerging Markets High Yield Bond ETF (NYSE: HYEM), the youngest of the three ETFs highlighted here, is off just a penny today. HYEM had a weight of 7.75 percent to Venezuela at the end of January, though that is down about 100 basis points from December.

Two issues from Venezuela's state-run oil company, Petroleos de Venezuela, are HYEM's largest and tenth-largest holdings, respectively, but the ETF's performance today proves Chavez and his country are not the tails that wag HYEM's dog.

Beyond Venezuela or any other geopolitical headwinds, HYEM is another ETF that contradicts the notion that investors no long favor high-yield debt. HYEM had $21.2 million in AUM in late December, but now has over $43 million, according to Market Vectors data.

For more on Latin American bonds, click here.

Posted-In: Hugo ChavezBonds Long Ideas News Short Ideas Specialty ETFs New ETFs Rumors Emerging Market ETFs Politics Events Global Intraday Update Markets Trading Ideas ETFs General Best of Benzinga

 

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