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World&#39;s largest asset manager and global wealth management firm BlackRock, Inc. (NYSE: BLK) is bullish on China&#39;s domestic bond market, reported CNBC.

BlackRock Sees China Bond Market As &#39;Fairly Attractive&#39;: CNBC

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World&#39;s largest asset manager and global wealth management firm BlackRock, Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/blk#NYSE">BLK</a>) is bullish on China&#39;s domestic bond market.
In the <a href="http://www.cnbc.com/2020/10/15/blackrock-is-bullish-on-chinas-onshore-bond-market.html">interview</a> on CNBC&#39;s Street Signs Asia, BlackRock Head of Asian Credit Neeraj Seth said, &quot;We still see China bond market to be fairly attractive.&quot;
Bullish Bond Thesis: The strong credit data, weak inflation, and liquidity injection from the People&#39;s Bank of China make the bonds attractive.
The real and nominal yields with the potential direction of monetary policy support returns in fixed income.
&quot;You have high nominal yield, potential to generate returns in an environment where rates are pretty low globally and a portfolio diversification,&quot; Seth told CNBC.
China is the second-largest bond market worth $16 trillion. Foreign investor participation in Chinese onshore bonds accounts for just over 2%. As the process of inclusion of Chinese bonds in major global indexes is underway, foreign participation will increase.
With low to no correlation to global markets, China&#39;s domestic bonds offer decent returns in an environment where rates are low globally.
Seth commented on the liquidity risk factors with regards to recent China&#39;s property developer <a href="https://www.cnbc.com/2020/10/07/chinese-property-developers-rising-debt-and-junk-bonds.html">Evergrand&#39;s bond debacle</a> by mentioning that the market is large and it offers a wide array of bonds issued by the government, state-owned enterprises, and private companies.
Investors can build a portfolio that is both resilient and diversified.
BlackRock, <a href="https://www.blackrock.com/sg/en/investment-ideas/china-bond-fund">on its website</a>, mentions that China&#39;s low co-relation to global risk assets is &quot;especially important during times of extreme market volatility&quot; offering up to an 18% annualized growth rate.
Related ETFs: iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/emb#NASDAQ">EMB</a>), Invesco Emerging Markets Sovereign Debt Portfolio ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pcy#NYSE">PCY</a>), VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/emlc#NYSE">EMLC</a>), VanEck Vectors ChinaAMC China Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/cbon#NYSE">CBON</a>) and KraneShares E Fund China Commercial Paper ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/kcny#NYSE">KCNY</a>)
&nbsp;

BlackRock Sees China Bond Market As 'Fairly Attractive'

The Federal Reserve meets this weeks and expectations are in place for an interest rate cut. Whether it&#39;s&nbsp;50 basis points or 25 basis points, that remains to be seen, but what is clear is that <a href="https://www.benzinga.com/trading-ideas/long-ideas/19/07/14120825/with-interest-rates-poised-to-decline-preferred-etfs-can-shine">high-yielding assets</a> have been in style this year amid hopes the Fed will trim borrowing costs.
<h3>What Happened</h3>
Among the income-generating assets that stand to benefit from lower U.S. interest rates are emerging markets bonds and the related exchange traded funds, such as the Invesco Emerging Markets Sovereign Debt ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pcy#NYSE">PCY</a>).
PCY, which tracks the DBIQ Emerging Market USD Liquid Balanced Index and holds dollar-denominated emerging markets debt, is up 11.39% this year.
PCY&#39;s index &ldquo;tracks the potential returns of a theoretical portfolio of liquid emerging markets US dollar-denominated government bonds issued by more than 20 emerging-market countries,&rdquo; <a href="https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=PCY">according to Invesco</a>.
<h3>Why It&#39;s Important</h3>
The Invesco ETF has a 30-day SEC yield of 4.76%, or more than double what investors get on 10-year Treasuries, to the allure of the product is understandable for income-hungry investors.
&ldquo;Currently, it appears there are very few places to generate yield, with 10-year rates in the Eurozone at negative 0.30%, and Japan at negative 0.15% and the US 10-year hovering around 2%, as of July 22, 2019,&rdquo; said Tim Urbanowicz, Invesco Senior Fixed Income ETF Strategist, in a recent note. &ldquo;Enter emerging markets (EM): as of July 22, 2019, <a href="https://www.etftrends.com/quote/PCY">Invesco Emerging Markets Sovereign Debt ETF (PCY)</a>, has an SEC 30-day yield of 4.80%, an effective duration &ndash; or measure of a bond&rsquo;s sensitivity to changes in interest rates &ndash; &nbsp;of 9.32 years, and 45% of the portfolio rated investment grade.&rdquo;
PCY is almost 12 years old and unbeknownst to many investors, the fund is one of the original smart beta fixed income ETFs owing to its equal-weight methodology. Said another way, PCY limits both geographic and issue risk through equal weighting. None of the fund&#39;s country weights exceed 2.79% and none of its 116 holdings exceed weights of 1.16%.
<h3>What&#39;s Next</h3>
Historical data confirm that a rate cut could in fact be a boon for PCY.
&ldquo;If we look at the last four easing cycles, USD EM debt has rallied an average of 9.5% in the 6 months following the first Fed cut, which makes a strong case for PCY,&rdquo; said Urbanowicz.
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Prophecy Development Corp. (&ldquo;Prophecy&rdquo; or the &ldquo;Company&rdquo;) (TSX:<a class="ticker" href="/stock/PCY#TSX">PCY</a>, OTCQX:<a class="ticker" href="/stock/PRPCF#OTCQX">PRPCF</a>, Frankfurt: 1P2N)) is pleased to announce the submission of its updated Plan of Operations (the &ldquo;POO&rdquo;) through the Company&rsquo;s US subsidiary for its 100% owned Gibellini vanadium project (the &ldquo;Gibellini Project&rdquo;) to the United States Department of the Interior, Bureau of Land Management, Mount Lewis Field Office (the &ldquo;BLM&rdquo;) and the Reclamation Permit Application to the Nevada Division of Environmental Protection, Bureau of Mining Regulation and Reclamation (the &ldquo;BMRR&rdquo;).
The POO which was submitted on schedule and prepared under budget, incorporated data and information from a number of consulting companies that are working on the project. Having submitted all the requisite environmental baseline studies, Prophecy&rsquo;s POO submission is the last major step before the publication of the Notice of Intent (NOI) which will initiate the Environmental Impact Statement (EIS) process under the Secretary of Interior Order No. 3355 (Streamlining National Environmental Policy Reviews and Implementation of Executive Order 13807; see Company&rsquo;s press release dated March 28th, 2018). The streamlined EIS process from NOI to the record of decision (ROD) is one year. Upon receipt of a positive ROD and issuance of Nevada State permits, Prophecy plans to start mine construction in 2021 subject to project financing completion, and begin vanadium production by Q4 2022.
This POO details the development plans for the open pit mining operations and processing facilities to extract and recover vanadium from the Gibellini Project with stated average mine production during the seven-year mine life of 15.7 million tons of materialized resource containing 120.5 million pounds of vanadium. The POO also includes an exploration plan to fully define all the additional mineralized target areas within the Project claim block. The primary facilities include the: pit, waste rock disposal facility, mine office, auxiliary facilities such as water and power, crushing facilities and stockpile, heap leach pad, process facility, water ponds, borrow areas, and mine and access roads.&nbsp;
Prophecy&rsquo;s CEO, Mike Doolin, states: &ldquo;With the filing of our Plan of Operations, we expect the NOI will be published in Q1 of 2020. We are confident to meet the NOI schedule, just as we have done with the filing of the POO as announced today.&rdquo; 
&nbsp;

PRPCF

TSX:PCY

Prophecy Development Reports Submitted Updated Plan Of Operations For Gibellini Project

As part of its previously announced expansion, <a href="https://www.benzinga.com/money/online-stock-trading/">Fidelity&#39;s </a>commission-free exchange traded funds platform includes ETFs from 11 issuers new to the lineup.
<h3>What Happened</h3>
In February, Boston-based Fidelity <a href="https://www.benzinga.com/news/19/02/13153841/fidelitys-commission-free-etf-platform-is-growing">announced plans</a> to boost the size of its commission-free ETF offering to over 500 funds. Previously, the firm&#39;s no commission ETF stable featured only Fidelity funds and iShares products.
Fidelity is adding to that stable in significant fashion with the addition of 150 ETFs from 11 other sponsors.
<h3>Why It&#39;s Important</h3>
The issuers new to the Fidelity commission-free ETF suite are American Century, First Trust, Franklin Templeton, Goldman Sachs Asset Management, Invesco, Janus Henderson, John Hancock Investments, J.P. Morgan Asset Management, Legg Mason Global Asset Management, PIMCO andState Street Global Advisors SPDR ETFs.
The ETFs available to Fidelity clients sans commission hail from 69 Morningstar investment categories and have average annual expense ratios of 0.36 percent.
&ldquo;Industry assets under management in Fidelity&rsquo;s available commission-free ETFs account for 40% of the overall U.S. ETF market,&rdquo; said Fidelity in a Monday statement. &ldquo;Fidelity has more than $450 billion in ETF client assets under administration.&rdquo;
Fidelity has over 28 million brokerage accounts for institutional and retail investors.
<h3>What&#39;s Next</h3>
Well-known iShares <a href="https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/all-commission-free-ETFs.pdf">funds on Fidelity&#39;s</a> commission-free platform include the iShares Gold Trust (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/iau#NYSE">IAU</a>), iShares MSIC Hong Kong ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/ewh#NYSE">EWH</a>), iShares China Large-Cap ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/fxi#NYSE">FXI</a>) and the iShares MSCI Emerging Markets ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/eem#NYSE">EEM</a>).
Popular SPDR ETFs available to Fidelity clients without commission include the SPDR DoubleLine Short Duration Total Return Tactical ETF (CBOE: STOT) and the SPDR DoubleLine Emerging Markets Fixed Income ETF (CBOE: EMTL).
Large Invesco ETFs on the Fidelity commission-free platform include the Invesco Emerging Markets Sovereign Debt ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pcy#NYSE">PCY</a>) and the Invesco S&amp;P Emerging Markets Low Volatility ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/eelv#NYSE">EELV</a>) as well as several other alternative, fixed income and international equity funds.
iShares, SPDR and Invesco are the largest, third- and fourth-largest U.S ETF sponsors, respectively.
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For investors clamoring for more factor-based fixed income exchange traded funds, the holidays arrived in July when Invesco Ltd. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/ivz#NYSE">IVZ</a>), the fourth-largest U.S. ETF sponsor, rolled out eight new bond funds Wednesday.
Each of the eight new ETFs track in-house indexes. The benchmarks for the new ETFs are based on methodologies already deployed by Invesco&#39;s actively managed fixed income products.
<h3>What Happened</h3>
With the Invesco Emerging Markets Sovereign Debt ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pcy#NYSE">PCY</a>) and the Invesco Fundamental High Yield Corporate Bond ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/phb#NYSE">PHB</a>), among others, Invesco has a long-standing tradition of fundamentally-weighted bond ETFs. Including equity funds, Invesco is one of the largest issuers of smart beta ETFs, having introduced its first fundamentally-weighted ETF in 2003. The firm launched its first smart beta bond ETF in 2007.
&ldquo;Invesco also has the largest platform of smart beta fixed income ETFs, both in terms of number of products (nine) and assets under management (AUM) of $6.5 billion (as of June 29, 2018),&rdquo; <a href="https://www.invesco.com/portal/site/us/financial-professional/etfs/strategies/fi-factors/">according to the issuer.</a>
<h3>Why It&#39;s Important</h3>
Invesco&#39;s new ETFs include corporate bonds, emerging markets debt and multi-factor strategies. The Invesco Corporate Income Defensive ETF (NYSE: IHYD) follows the Invesco High Yield Defensive Index, which is designed to find higher quality junk-rated corporates.
The Invesco Corporate Income Value ETF (NYSE: IHYV) tracks the Invesco High Yield Value Index. IHYV holdings meet value and quality metrics.
Adding to Invesco&#39;s extensive lineup of international bond ETFs, the Invesco Emerging Markets Debt Defensive ETF (NYSE: IEMD) focuses on bonds with positive traits such as <a href="https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=IEMD&amp;ticker=IEMD&amp;title=invesco-emerging-markets-debt-defensive-etf">higher credit ratings and shorter maturities</a>.
The Invesco Emerging Markets Debt Value ETF (NYSE: IEMV) also looks for higher credit quality bonds with shorter maturities. IEMV debuted with 184 holdings from 10 countries. China and Indonesia combine for nearly 40 percent of the new ETF&#39;s weight.
<h3>What&#39;s Next</h3>
The Invesco Investment Grade Defensive ETF (NYSE:IIGD) is a defensive/quality play on investment-grade U.S. corporates. Eighty percent of the new ETF&#39;s 64 holdings are rated AA or A, <a href="https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=IIGD&amp;ticker=IIGD&amp;title=invesco-investment-grade-defensive-etf">according to issuer data</a>.
A value spin on investment-grade domestic corporate bonds is the Invesco Investment Grade Value ETF (NYSE: IIGV), which holds 61 bonds and tracks the Invesco Investment Grade Value Index. Eighty-four percent of IIGV&#39;s holdings are rated A or BBB.
The Invesco Multi-Factor Core Fixed Income ETF (NYSE: IMFC) holds mortgage-backed securities (MBS), short-dated Treasuries, long-date Treasuries, investment-grade corporates and some junk bonds.
The Invesco Multi-Factor Core Plus Fixed Income ETF (NYSE: IMFP) follows a methodology similar to IMFC, but the &ldquo;plus&rdquo; offering features higher allocations to corporate bonds as well as some exposure to emerging markets debt.
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PowerShares Fundamental High Yieldorate Bond Portfolio

Invesco's Big Fixed Income Factor ETF Splash

As sovereign debt yields in developed markets plummeted and, in some cases, turned negative, income investors turned to emerging market debt for higher yields. Plenty of emerging markets bond exchange traded funds are listed in the U.S., but the iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ: <a class="ticker" href="/stock/emb#NASDAQ">EMB</a>) is the largest, with nearly $12 billion in assets under management.
EMB is the largest emerging markets bond fund of any stripe in the world, but there are other options to consider. For example, the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>) is a viable competitor. PCY is the second-largest ETF holding developing world debt behind EMB.
PCY turns 11 later this year and has over $5 billion in assets under management. Both EMB and PCY hold dollar-denominated bonds.
<h3>
	An Alternative</h3>
EMB is a cap-weighted fund, meaning the largest issuers and individual issues command the biggest percentages of the fund&#39;s weight. PCY uses a different approach.
&ldquo;To address this issue, PCY&rsquo;s DB Emerging Market USD Liquid Balanced Index benchmark equally weights its holdings by country and by issue,&rdquo; Morningstar said&nbsp;<a href="http://www.morningstar.com/articles/852870/sizing-up-a-pair-of-emergingmarkets-debt-etfs.html">in a recent note.</a>
PCY holds 93 bonds and its largest country allocation commands just over 4 percent of the fund&#39;s weight. Just over three-quarters of the fund&#39;s holdings are rated BBB, BB or B.
&ldquo;The fund targets bonds with the largest yields and equally weights each country and issuers within each country based on a defined set of criteria established by the Deutsche Bank emerging-markets index committee,&rdquo; according to Morningstar.
<h3>
	Geographic Risk</h3>
About a quarter of PCY&#39;s roster carries a non-investment grade rating, a trait reflective of PCY&#39;s different country allocations relative to competing funds. While many emerging markets bond funds are heavy on the likes of Brazil, Mexico and Russia, PCY also holds debt from smaller developing markets, such as El Salvador, the Dominican Republic and Kazakhstan.
&ldquo;For example, the fund held debts from Slovenia, Qatar and Latvia in 2017. These countries&rsquo; obligations are less frequently traded than debts from other large emerging markets such as Indonesia and Mexico, making them costlier to transact,&rdquo; according to Morningstar.
PCY offers some compensation for the credit and geographic risk in the form of a 30-day SEC yield of 4.46 percent. Past performance is never a guarantee of future returns, but PCY and EMB have performed inline with each other over the past three years, each generating returns of about 15.5 percent.
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Considering PowerShares' Emerging Markets ETF

Venezuelan sovereign bonds have been among the world&#39;s most volatile. On Wednesday, the South American country unveiled a debt restructuring deal with Russia and, separately, earned words of encouragement from another major creditor: China.
Earlier this week, S&amp;P Global Ratings said Venezuela was in selective default on two its bond issues, maturing in 2019 and 2024. On Tuesday, Fitch Ratings downgraded Venezuela&#39;s Long-Term Foreign Currency Issuer Default Rating to &ldquo;RD,&quot; or restricted default, from &ldquo;C.&rdquo; The controversy surrounding Venezuela&#39;s ability to repay its debts is not hampering exchange traded funds holding the country&#39;s bonds.
Venezuelan bonds are found in many hard-currency emerging-markets debt ETFs, but the majority of these funds are passively managed and the indexes they track do not have significant exposure to Venezuelan debt. For example, the iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ: <a class="ticker" href="/stock/emb#NASDAQ">EMB</a>), the largest emerging markets bond ETF, allocates less than 1.3 percent of its weight to Venezuela&#39;s sovereign debt.
EMB can hold bond defaults as highlighted by previous exposure to Ukraine and Argentina, but weights to defaulted bonds typically decline in the fund&#39;s index. As that debt is restructured, EMB&#39;s index can increase its weight to those bonds.
<h3>
	Allocations Matter</h3>
&ldquo;At present, there is no meaningful amount of local-currency Venezuelan debt outstanding thanks to the country&#39;s hyperinflation,&rdquo; <a href="http://beta.morningstar.com/articles/836439/etf-investors-shouldnt-cry-for-venezuelas-bonds-.html">said Morningstar.</a> &ldquo;Hyperinflation has all but wiped out the value of the country&#39;s local-currency debt as the government has kept printing more money to meet its obligations. As a result, the country&#39;s bolivar-denominated domestic debt is essentially worthless, which explains why only hard-currency Venezuelan debts are owned by virtually all emerging-markets bond funds.&rdquo;&nbsp;
What that means is that local currency bond ETFs are unlikely to hold Venezuelan bonds. The $4.2 billion VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (NYSE: <a class="ticker" href="/stock/emlc#NYSE">EMLC</a>) holds 270 bonds denominated in local currencies. Although a significant portion of that ETF&#39;s geographic exposure lies in South America, EMLC features no bolivar-denominated issues.
<h3>
	Reminders</h3>
The PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>) has $4.9 billion in assets under management and is the second-largest dollar-denominated emerging markets bond ETF behind EMB.
With just 83 holdings, PCY&#39;s roster is small compared to rivals such as EMB and EMLC. PCY holds previous defaults, including Argentina and Ukraine, as well as some speculative CCC-rated issues, but the ETF has a Venezuela weight of just 1.7 percent.
&ldquo;The Venezuelan debt situation is a good reminder for investors how important it is to understand the inner workings of indexes tracked by ETFs,&rdquo; said Morningstar. &ldquo;In the process of digging in, investors will recognize that most emerging-markets debt ETFs&#39; Venezuelan exposure comprises less than 3 percent of their portfolio.&rdquo;
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Venezuela's Woes Are Barely Felt By Emerging Market Bond ETFs

The Federal Reserve raised interest rates for the first time in 2017 last week and expectations are in place for a couple of more rate hikes before the end of this year.
In theory, the specter of higher U.S. interest rates should dampen investors&#39; enthusiasm for rate-sensitive, income-generating assets such as emerging markets debt. Reality is showing a different trend, as investors are putting money to work with exchange traded funds such as the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>).
&ldquo;Emerging market bonds have regained favor with investors in 2017 and are on track to register the second largest quarterly inflow on record,&rdquo; said <a href="http:// http://www.markit.com/Commentary/Get/21032017-Equities-Appetite-for-emerging-market-bonds-resurges">Markit</a> in a recent note. &ldquo;The closing three months of last year had seen investors&rsquo; faith in the asset class waiver due to US interest rate normalization and growing uncertainty stemming from the incoming administration&rsquo;s &#39;America First&#39; agenda which saw over $2 billion flow out of emerging market bonds.&rdquo;
The case for the dollar-denominated debt held by EMB and rival ETFs was bolstered in the a &ldquo;lower for longer&rdquo; environment, because emerging market bonds denominated in dollars have previously <a href="https://www.benzinga.com/trading-ideas/long-ideas/16/09/8434302/another-catalyst-for-em-bond-etfs">proven sensitive to rising Treasury yields</a>.
Importantly, there are other factors at play bolstering the case for emerging market bond ETFs that extend beyond tempting yields and the Fed not raising rates. While ETFs such as EMB are often beholden to external factors such as Fed policy and dollar strength, improving domestic fundamentals in some developing economies help matters.
The $9.55 billion EMB, which holds 351 bonds, has a 30-day SEC yield of 4.76 percent and an effective duration of 6.83 years. Investors have added $1.41 billion to EMB year-to-date. EMB&#39;s primary rival, the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>), has added $133 million in new assets this year. Only 10 PowerShares ETFs have seen larger year-to-date inflows.
PCY has a 30-day SEC yield of 5.25 percent and an effective duration of 8.87 years. EMB and PCY have been key drivers of flows to emerging markets debt ETFs this year.
&ldquo;The hefty $5 billion of new assets that has flowed into emerging market bond ETFs this year to date indicates that the gathering economic momentum is overriding any lingering fears around policy uncertainty,&rdquo; said Markit. &ldquo;This growing consensus is also reflected by the fact that investors are now willing to receive much less yield to hold dollar denominated emerging market bonds over US treasuries than at any point over the last year.&rdquo;

Investors Renew Enthusiasm For Emerging Market Bond ETFs

With news of the Federal Reserve&#39;s first interest rate hike of 2016 and just its second in the past decade, 10-year Treasury yields closed at 2.52 percent Wednesday. While that may appear to be a remarkable rise off the less than 1.4 percent seen in early July, there remain fixed income assets and exchange-traded funds with far more compelling yields.
<h3>The Fed And EM Bond ETFs</h3>
Until recently, emerging markets bond ETFs had been popular destinations for bond investors seeking added yield. However, some of the shine <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/12/8803432/bond-etf-ideas-for-rising-rates">came off the asset class</a> in anticipation of the aforementioned Fed rate hike.
Indeed, the Fed is targeting three rate increases next year, but the iShares JPMorgan USD Emer Mkt Bnd Fd ETF (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>) and the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>), the two largest emerging markets bond ETFs trading in New York, still sport attractive yields and can potentially endure a hawkish Fed.
&ldquo;IShares JPMorgan USD Emerging Markets Bond ETF (EMB) is the largest exchange-traded fund for the investment style, with $8 billion in assets. EMB pulled in $3.4 billion in new money year to date, according to data on etf.com. The ETF sports a 12-month yield of 5.1 percent, despite investing 53 percent of its assets in bonds rated BBB or higher,&rdquo; said <a href="https://www.cfraresearch.com/">CFRA Research</a> in a note out Wednesday.
<h3>The Differences Between The 2</h3>
PCY, the PowerShares offering, is a different animal than the rival EMB, leading to differences in yield and total returns.
&ldquo;The second biggest emerging market debt ETF is PowerShares Emerging Markets Sovereign Debt Portfolio (PCY), which has a slightly higher 5.3 percent 12-month yield. Aided by $1.1 billion in net inflows this year, the ETF has $3.8 billion in assets. While PCY is also relatively diversified at the country level, the exposure between these ETFs is different in part because the index that PCY tracks equally weights each country and then screens for liquid bonds that are deemed attractively valued,&rdquo; noted CFRA.
Worth noting is that EMB holds almost an equal amount of investment-grade and junk debt, a unique feature in the world of bond ETFs. Earlier this year, EMB became the largest emerging markets bond fund in the world, including mutual funds.
CFRA has ratings on five emerging markets bond ETFs, four of which, including EMB, are rated Market Weight. PCY is the only emerging markets debt ETF to earn an Overweight rating from the research firm.

Analyst Color

Analyst Ratings

EM Bond ETFs: Still Ideal Yield Destinations

If fixed income exchange traded funds are hot, then emerging markets bonds are scorching.

	Year-to-date, the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>) and the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>), the two largest emerging markets bond ETFs trading in New York, are up an average of 15 percent while sporting average annualized volatility of just over 6 percent. That volatility measuring is less than a third of that on the MSCI Emerging Markets Index.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/10/8540468/the-growth-of-bond-etfs-is-staggering">The Growth Of Bond ETFs Is Staggering</a></bzrelatedlink>

	Investors have been pumping money into the likes of EMB and PCY as part of their yield-hunting endeavors, prompting some speculation of crowded trade or that emerging markets debt isn&#39;t as attractively valued as it was earlier this year. Leaving the first point for another day, the valuation concern is worth addressing and investors might like what they hear.

	Worth noting is that EMB holds almost an equal amount of investment-grade and junk debt, a unique feature in the world of bond ETFs, and one that means this fund can be measured against investment-grade and high-yield rivals, such as the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: <a class="ticker" href="/stock/lqd#NYSE">LQD</a>) and the SPDR Barclays High Yield Bond ETF (NYSE: <a class="ticker" href="/stock/jnk#NYSE">JNK</a>).

	&ldquo;After subtracting the fund&rsquo;s expense ratio of 40 basis points, we arrive at an ALTAR Score&trade;&mdash;our forecast of a bond fund&rsquo;s long-term annualized return to shareholders&mdash;of 2.74% (Figure 5). In contrast, the investment grade corporates in LQD offer a much lower yield to maturity of 3.02%, but with an annual default factor of just 15 basis points and an expense ratio of 21 basis points, LQD has an ATLAR Score&trade; of 2.66%. That&rsquo;s close enough to the ALTAR Score&trade; for JNK (a difference of only 8bp) that we can conclude that the market is pricing the relative credit risks of the two fairly efficiently,&rdquo; said <a href="http://altavista-research.com/">AltaVista</a> Research in a recent note.

	EMB&#39;s 30-day SEC of 4.47 percent is more than 150 basis points higher than LQD&#39;s, but that does not mean investors will pay up for the emerging bond fund.

	While EMB doesn&rsquo;t yield anywhere near what it did back in 2009-10, no fixed income fund does.

	&quot;Nonetheless we can see that in the environment of unusually low interest rates that has persisted since around 2012, EMB&rsquo;s current yields are towards the higher end of their trading range, suggesting that prices are somewhat low,&rdquo; adds AltaVista.

EM Bond ETFs Are Still Attractive

After several years of being over-laggards, emerging markets assets are finally delivering for investors. And, the resurgence of developing world debt is a big reason why.
In fact, emerging markets fixed income exchange-traded funds are performing on par with their equity-based counterparts while exposing investors to significantly less volatility.
<h3>PowerShares Emerging Markets Sovereign Debt Portfolio</h3>
Just look at the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>). The dollar-denominated PCY, the second-largest emerging markets bond ETF by assets, is up 16.3 percent year-to-date, or just 50 basis points behind the MSCI Emerging Markets Index. However, PCY&#39;s annualized volatility is just about a third of that of the MSCI index.
So, there are good reasons for PCY to be <a href="http://trymsatoday.com/">S&amp;P Capital IQ&#39;s</a> focus ETF for October. Those reasons include passive ETFs such as PCY being better bets than their actively managed rivals.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/09/8508353/a-reason-to-say-oui-to-the-france-etf">A Reason To Say Oui To The France ETF</a></bzrelatedlink>
&ldquo;We think emerging market debt products have garnered attention in 2016, as they generally sport relatively appealing yields. However, according to the SPIVA Mid-2016 Scorecard from S&amp;P Dow Jones Indices, 11 percent of actively managed emerging market debt mutual funds outperformed the Barclays Emerging Markets Index in the three-year period ended June 2016. While some think the high costs of active management is the culprit, these active funds lagged by 311 basis points,&rdquo; said S&amp;P Capital IQ in a note out Thursday.
<h3>Justification</h3>
Two reasons explain investors&#39; enthusiasm for ETFs like PCY this year. First, and most obvious, is the world is awash in low- and negative-yielding bonds, making PCY&#39;s 30-day SEC yield of 4.74 percent seem all the more attractive. Second, the Federal Reserve has held off on raising interest rates, suppressing the dollar in the process while providing a tailwind to emerging markets bonds that were once imperiled by the strong greenback.
Emerging markets bonds&#39; sensitivity to interest rates is <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7773623/pedal-to-the-metal-for-these-bond-etfs">easy to figure out</a>. Emerging markets governments and some corporations binge borrowed in dollars during the various versions of the Fed&#39;s quantitative easing programs. It looked smart, as the dollar weakened against a plethora of developed and emerging currencies, but those emerging markets borrowers were caught off guard when the dollar started soaring several years ago. 
Liquidity is another concern with bond ETFs, particularly those holding more exotic fare such as emerging markets debt. Fortunately, PCY passes the liquidity test.
&ldquo;In addition, the ETF&#39;s liquidity is strong to us. Average daily volume has increased in recent months and 1.8 million shares traded on a daily basis in the past month, up from 1.4 million during last six months. Strong volume, as percentage of its $4 billion in assets, has helped to keep trading costs low. PCY has a $0.01 bid/ask spread,&rdquo; added S&amp;P Capital IQ.
Investors have added <a href="https://www.invesco.com/portal/site/us/financial-professional/etfs/tools/flow-trend-tracker">$955.3 million to PCY</a> this year, a total exceeded by just three other PowerShares ETFs.
<a href="https://pro.benzinga.com/?utm_source=Benzinga&amp;utm_medium=Benzinga%20Top%20of%20Article&amp;am%22%3">Full ratings data available on Benzinga Pro.</a>
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Evaluating A High-Flying Emerging Markets ETF

In a recent Seeking Alpha post, Fernando Posadas shared some insights about the oil output in Latin America, where major producers have witnessed declines of almost 400K bpd year-over-year. Moreover, this figure still reflects the strong influence of Brazil, which has helped maintain output levels.

	As of June, Argentina had seen a 6 percent year-over-year decline in production; Colombia, a 12 percent tumble; Mexico, a 3 percent slip; and Venezuela, an 11 percent plummet. Production across the sub-continent only grew in Brazil (6 percent) and Ecuador (2 percent).

	&ldquo;Taking rig count as a forward-looking indicator, we can say that Latin America will stop declines in the best-case scenario, but in the medium term,&rdquo; the author concluded.
<h3>
	South Africa Is King Again</h3>

	South Africa has managed to regain its position as Africa&rsquo;s largest economy, following a two-year Nigerian tenure. According to IMF data, the swap can be mainly attributed to currency issues: while the South African rand has gained almost 20 percent over the past six months, the Nigerian naira has lost more than 38 percent &ndash; most of it during June&rsquo;s devaluation.

	Per IMF data, South Africa&#39;s economy is currently worth roughly $301 billion, while Nigeria&rsquo;s economy reaches $296 billion.

	&ldquo;But look behind the league table and the light-hearted jostling about who has the largest economy in Africa and things, economically speaking, are a little bleaker. Both economies contracted in the first quarter. Another contraction and they&#39;ll both be in recession,&rdquo; <a href="http://www.bbc.com/news/world-africa-37045276">BBC</a> said.
<h3>
	Why Indian Equity Markets Beat The Chinese </h3>

	Indian equity markets have performed a lot better than Chinese markets over the past few years. For instance, over the past year, the iShares FTSE/Xinhua China 25 Index (ETF) (NYSE: <a class="ticker" href="/stock/fxi#NYSE">FXI</a>) has lost 8.6 percent, while the iShares S&amp;P India Nifty 50 Index Fund (NASDAQ: <a class="ticker" href="/stock/indy#NASDAQ">INDY</a>) slipped just 2.74 percent. Over the last five years, the former fund tumbled 4.44 percent, while the latter gained 13.36 percent.

	In a recent <a href="http://www.forbes.com/sites/panosmourdoukoutas/2016/08/11/why-indias-markets-beat-chinas/#7ab7e5061c05">Forbes</a> article, Panos Mourdoukoutas shared some of the reasons behind India&rsquo;s outperformance.

	&ldquo;First, India&rsquo;s market is opened to foreign capital. China isn&rsquo;t,&rdquo; he said. &ldquo;Indian stocks move up and down more closely in sync with the global emerging market average than the stocks of most other countries do &ndash; because its emerging markets are deep and diverse.&rdquo;

	Other reasons include the pace of financial reform (steadier in India), the diversity of profit-oriented companies in the Indian equity market, and the accelerating Indian growth &ndash; versus China&rsquo;s decelerating pace.

SPDR S&P Emerging Middle East & Africa ETF

INDY

SCHE

Emerging Markets Right Now: Latin America's Oil Surprise, Africa's New Main Economy & India's Outperformance

Put simply, a big reason why investors are flocking to emerging markets bond exchange-traded funds this year is yield. Just look at the iShares JPMorgan USD Emer Mkt Bnd Fd ETF (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>) and the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>).
The two largest emerging markets bond ETFs, both which hold dollar denominated debt, have an average 30-day SEC yield of more than 4.5 percent. That is roughly triple the current yield on 10-year U.S. Treasurys.
<h3>Yearning For Yield, But...</h3>
Yield is important, particularly with bond ETFs and in the case of emerging markets bond funds, investors usually find tempting yields due to the conventional wisdom that debt courtesy of a developing world government is riskier than a developed market equivalent. Still, liquidity is an important concern in the bond market and recent data suggest investors lean toward emerging markets bond ETFs they view as sufficiently liquid.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/general/education/16/08/8297906/fantastic-yields-and-where-to-find-them-top-3-yields-from-the-dow-30">Fantastic Yields And Where To Find Them: Top 3 Yields From The Dow 30</a></bzrelatedlink>
&ldquo;In the ever evolving trade-off between yield and liquidity however, it seems that investors riding the emerging market bond ETF wave have chosen the latter. This preference for the liquidity is evidenced by the fact that products that investing relatively lower yielding hard currency denominated bonds, such as US dollars, but which carry much less currency risk and liquidity constraints, have seen a 70 percent share of the record $10.3bn that has been invested into the asset class,&rdquo; said Markit <a href="http://www.markit.com/Commentary/Get/03082016-Credit-EM-bond-investors-choose-liquidity-over-yield">in a recent note</a>.&nbsp;
<h3>The Role Of Liquidity</h3>
It is not surprising that investors that prize liquidity would lean toward dollar-denominated ETFs like EMB and PCY. However, the Market Vectors Emerging Mkts Local ETF (NYSE: <a class="ticker" href="/stock/emlc#NYSE">EMLC</a>), one of the largest ETFs holding emerging markets debt denominated in local currencies, is no slouch. EMLC has added over $611 million in new assets this year, or about 20 percent of the total investors have allocated to emerging markets bond funds denominated in local currencies.
As Markit, the trade-off for liquidity means leaving some yield on the table.
&ldquo;Local currency funds have also proved popular. However, the fact that over two thirds of investors are willing to pass up on the 1.43% of extra yield currently offered by the asset class, as gauged by the current difference in weighted average yield to maturity between the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) and the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC), the largest US listed hard and local currency funds respectively, shows that yield isn&rsquo;t everything,&rdquo; said the research firm.
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It's Not All About Yield For EM Bond Investors

Thanks in large part to massive inflows to fixed income funds, the global exchange-traded funds industry reached another assets under management record at the end of May with $3.143 trillion in combined AUM.
The U.S. ETF market, the largest in the world, also hit a record with a $2.229 trillion in AUM, according to <a href="http:// http://etfgi.com/index/cookie">ETFGI</a>, a London-based provider of ETF data.
<h3>Adding Up Assets</h3>
&ldquo;Investors put an additional $4.2 billion of net new money into fixed income ETFs in May, pushing the year to date flows figure to $42 billion, according to Factset data. While demand remained strong for actively managed fixed income mutual funds this year, up until last week, a wide variety of lower-cost ETFs that offer intra-day liquidity and typically seek to passively replicate an index have been gaining share in 2016,&rdquo; said <a href="http://trymsatoday.com/">S&amp;P Capital IQ</a> in a note out Monday.
Year-to-date, four of the top asset-gathering ETFs <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8076756/guess-what-investors-still-love-bond-etfs">are bond funds</a>, a group that includes the iShares Barclays Aggregate Bond Fund (NYSE: <a class="ticker" href="/stock/agg#NYSE">AGG</a>) and the Vanguard Total Bond Market ETF (NYSE: <a class="ticker" href="/stock/bnd#NYSE">BND</a>).
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/06/8094740/this-hedge-fund-manager-believes-argentina-is-the-best-m">This Hedge Fund Manager Believes Argentina Is "The Best Macro Story In the World"</a></bzrelatedlink>
&ldquo;In May 2016, ETFs/ETPs have gathered net inflows of US$10.60 billion &mbsp; Fixed income ETFs/ETPs gathered the largest net inflows with US$7.47 billion, followed by commodity ETFs/ETPs with US$5.47 billion, while equity ETFs/ETPs experienced net outflows of US$4.53 billion. This marks the 28th consecutive month of net inflows,&rdquo; said ETFGI.
<h3>Emerging Markets</h3>
Another favored destination for investors has been emerging markets debt. As has been <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8091108/investors-really-like-emerging-markets-bonds-etfs-too">widely reported this week</a>, the iShares JPMorgan USD Emer Mkt Bnd Fd ETF (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>) is now the largest emerging markets bond fund of any variety in the world.
The PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>), the second-largest emerging markets bond ETF trading in the U.S. behind EMB, has added nearly $400 million in new money this year. 
In May, Vanguard was the top asset gatherer, adding $8.46 billion in new ETF assets. Charles Schwab Corp (NYSE: <a class="ticker" href="/stock/schw#NYSE">SCHW</a>) was next at $1.32 billion followed by VanEck at $1.11 billion, according to ETFGI data.
&ldquo;Year-to-date, Vanguard gathered the largest net ETF/ETP inflows YTD with US$32.26 billion, followed by iShares with US$27.08 billion and SPDR ETFs with US$6.29 billion net inflows,&rdquo; said ETFGI.

SCHW

Bond ETFs Propel ETF Industry To Another Record Assets Tally

In the wake of the disappointing May jobs report, which significantly reduced the chances of the Federal Reserve raising interest rates this month or next month, data suggest investors are renewing their affinity for emerging markets exchange-traded funds.
The same is certainly true when it comes to ETFs tracking emerging markets sovereign debt. Actually, investors have been enthusiastic about this asset, probably more so than developing world equities, for essentially <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7773623/pedal-to-the-metal-for-these-bond-etfs">all of 2016</a> to this point.
<h3>EMB Skids Ahead</h3>
<a href="http:// http://www.bloomberg.com/news/articles/2016-06-07/a-blackrock-bond-etf-heralds-new-world-order-in-emerging-markets">Bloomberg</a> had a great anecdote in an article out Tuesday regarding this topic. Investors have poured so much cash into the iShares JPMorgan USD Emer Mkt Bnd Fd ETF (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>) in recent weeks that the ETF is now the largest emerging markets bond fund of any stripe in the world.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/node/8089042">The Great Beer Catastrophe: Venezuela's Economic Crisis Has Sobering Consequences</a></bzrelatedlink>
EMB has nearly $7 billion in assets under management, making it larger than any other active or passive fund offering exposure to emerging markets debt. EMB has an equivalent trading in Europe that has about $5 billion in assets, making that ETF one of the largest emerging markets sovereign debt funds in the world.
<h3>PCY Is Not Too Shabby, Either</h3>
The PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>), EMB&#39;s primary rival in the U.S. and the second-largest ETF of its kind trading in New York, has not been a slouch either. Year-to-date, PCY has added $388.5 million in new money, a total exceeded by just <a href="https://www.invesco.com/portal/site/us/financial-professional/etfs/tools/flow-trend-tracker">four other PowerShares ETFs</a>.
&ldquo;According to Markit&rsquo;s ETP analytics, ETFs tracking emerging market bonds saw $567 million of inflows last week, the largest since the start of May, as the asset class gathers momentum,&rdquo; said <a href="http://www.markit.com/Commentary/Get/08062016-Credit-Investors-flock-to-emerging-market-bonds">Markit</a> in a recent note. &ldquo;The rise in the fixed income ETF as a way to gain emerging market debt exposure is best exemplified by the iShares J.P. Morgan USD Emerging Markets Bond ETF, which has seen its AUM increase by 74 percent since February 8.&rdquo;
It is easy to understand investors&#39; thirst for developing world debt. As <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/06/8086054/an-obvious-catalyst-for-gold-etfs">Benzinga reported Wednesday</a>, &ldquo;A whopping $8 trillion in global investment-grade sovereign debt currently sports negative yields, meaning investors that make those bets will lose money. The World Gold Council adds 40 percent of global sovereign debt sports yields below 1 percent.&rdquo;
With piddly yields on developed world bonds, EMB and PCY, with 30-day SEC yields of 5 percent and 5.3 percent, respectively, look all the more enticing.

Investors Really Like Emerging Markets' Bonds ETFs, Too

Just when it looked like things couldn&rsquo;t get much worse for economically-ravaged Venezuela, residents may no longer be able to drown their sorrows. Empresas Polar SA, maker of 80 percent of the beer consumed in Venezuela, is <a href="http://www.wsj.com/articles/beer-becomes-the-latest-scarcity-in-a-venezuela-wracked-by-shortages-1461963129">shutting down</a> its last plant this Friday.
The company said the shutdown will leave the country with only a week&rsquo;s supply of beer.
The International Monetary Fund projects that the Venezuela economy, which has been hit hard by the collapse in oil prices, will contract by 8.0 percent this year.
Venezuelans who have already dealt with shortages of food and medicine are now facing even more sobering hardships.
&ldquo;Without approval and a supply of [foreign] currency to the suppliers, the company doesn&rsquo;t have a way to operate,&rdquo; Polar CEO Lorenzo Mendoza told the Wall Street Journal.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/markets/emerging-markets/16/06/8078942/for-hedge-funds-shorting-china-is-easier-said-than-done">For Hedge Funds, Shorting China Is Easier Said Than Done</a></bzrelatedlink>
President Nicolas Maduro called the shutting down of the beer plants &ldquo;a serious crime, very serious,&rdquo; but Mendoza said Polar can&rsquo;t go out and buy currency to pay suppliers because that is also against the law.
The Venezuelan government, which has already taken over 1,200 companies, could choose to step in and seize control of Polar.
So far this year the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>), which is 3.0 percent comprised of Venezuelan bonds, is up 6.2 percent.
Disclosure: The author holds no position in the stocks mentioned.

The Great Beer Catastrophe: Venezuela's Economic Crisis Has Sobering Consequences

Emerging markets sovereign debt and the corresponding exchange-traded funds are viewed as vulnerable to hawkish changes in U.S. interest rates. With the Federal Reserve perhaps nearing a rate hike sometime over the next two months, some market observers are betting this time will be different for emerging markets bonds.
The $3.17 billion PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>), which tracks a basket of dollar-denominated developing world debt, has recouped all of its losses experienced following the release of the May Federal Open Market Committee (FOMC) meeting minutes and is up 1 percent over the past month.
<h3>Weaker Dollar, Rebounding Commodities And Debt</h3>
Although emerging markets currencies are on the mend this year, thanks in large part to the weaker dollar and rebounding commodities prices, ETFs holding emerging markets debt denominated in local currencies can deliver solid returns, while also exposing investors to elevated volatility.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/06/8065447/expect-higher-profits-for-this-etfs-holdings">Expect Higher Profits For This ETF's Holdings</a></bzrelatedlink>
&ldquo;Note that dollar-denominated emerging market bonds are more closely correlated to US investment grade bonds than to US equities. This is not the case for local currency emerging market debt, which may reduce its diversification benefits,&rdquo; said PowerShares <a href="https://www.blog.invesco.us.com/emerging-market-bonds-currency-risk">in a recent note</a>. &ldquo;In addition, dollar-denominated emerging market bonds have historically provided better risk-adjusted returns over long periods of time than emerging market debt denominated in local currency.&rdquo;
PCY has a duration of 8.62 years, so there is some sensitivity to interest rates with this ETF. Investors are compensated for that rate risk with a 30-day SEC yield of nearly 5.4 percent. Credit risk is also a concern of investors mulling stakes in ETFs such as PCY, so it must be pointed out that the 40 percent of the ETF&#39;s lineup is rated either BB or B.
<h3>Interest Rate Sensitivity</h3>
Emerging markets bonds&#39; sensitivity to interest rates is <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7773623/pedal-to-the-metal-for-these-bond-etfs">easy to figure out</a>. Emerging markets governments and some corporations binge borrowed in dollars during the various versions of the Fed&#39;s quantitative easing programs. It looked smart as the dollar weakened against a plethora of developed and emerging currencies, but those emerging markets borrowers were caught off guard when the dollar started soaring several years ago.
&ldquo;Over the course of nearly eight years, dollar-denominated emerging market debt generated higher return per unit of risk than US investment grade bonds, large-cap US equities and emerging market bonds denominated in local currency,&rdquo; according to PowerShares. &ldquo;And this outperformance wasn&rsquo;t merely a function of dollar strength. Between Jan. 31, 2009, and Aug. 31, 2011, the US dollar fell in value by 7.5 percent. Despite that tailwind for overseas currencies, traditional local currency bonds still generated poor risk-adjusted returns.&rdquo;

Of The Fed And Emerging Markets Bonds ETFs

Rebounding emerging markets equities and exchange-traded funds are one of this year&#39;s most compelling investment stories. So compelling is the emerging markets rally that investors are piling back into the very ETFs they could not wait to abandon.
At least three factors &ndash; the weaker dollar, rebounding commodities prices and China&#39;s economic recovery &ndash; have some market observers waxing bullish about developing world stocks and ETFs.
&ldquo;The Federal Reserve (Fed) has signaled <a href="https://www.blackrockblog.com/2016/04/05/fed-track/">it is set</a> to keep rates on hold for now. This has lowered the near-term risk of EM capital outflows, weakened the U.S. dollar and boosted oversold EM currencies. Also supporting EMs: firming oil prices, fading global recession fears and <a href="https://www.blackrockblog.com/2016/04/14/brics/">signs China&rsquo;s economy</a> may enjoy a cyclical rebound,&rdquo; said BlackRock, the world&#39;s largest asset manager and ETF issuer, <a href="https://www.blackrockblog.com/2016/04/25/opportunity-for-emerging-market-assets/">in a recent note</a>.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/04/7859832/new-etf-gets-comprehensive-with-emerging-markets-exposure">New ETF Gets Comprehensive With Emerging Markets Exposure</a></bzrelatedlink>
<h3>Emerging Markets ETFs</h3>
Year-to-date, the Vanguard FTSE Emerging Markets Stock Index Fd (NYSE: <a class="ticker" href="/stock/vwo#NYSE">VWO</a>) and the iShares MSCI Emerging Markets Indx (ETF) (NYSE: <a class="ticker" href="/stock/eem#NYSE">EEM</a>), the two largest emerging markets ETFs, are up an average of 6.5 percent. Neither of those funds have finished higher on an annual basis since 2012.
However, investors have not been shy about betting that 2016 ends emerging markets ETFs&#39; losing streak. At least that what flows data are saying.
<h3>Flows Data</h3>
&ldquo;This &#39;sweet&#39; economic backdrop helps explain an EM rebound, evident in EM-related exchange traded products (<a href="http://www.investopedia.com/terms/e/exchange-traded-products-etp.asp">ETPs</a>) attracting nearly $16 billion this year, according to BlackRock research. EM ETPs have recouped 75 percent of 2015 outflows, the &lsquo;short EM&rsquo; trade is much less crowded than it was at the start of the year, and EM valuations are no longer unambiguously cheap, our research suggests,&rdquo; said BlackRock.
That, after EEM and VWO lost over $9.4 billion combined last year and about $4.7 billion in 2014. On its own, EEM added $4.6 billion in new assets last month.
<h3>Emerging Markets Bond ETFs</h3>
Emerging markets bond ETFs, such as the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>) are also benefiting from the Fed&#39;s reluctance to boost interest rates. 
Emerging markets governments and some corporations binge borrowed in dollars during the various versions of the Fed&#39;s quantitative easing programs. It looked smart as the dollar weakened against a plethora of developed and emerging currencies, but those emerging markets borrowers were caught off guard when the dollar started soaring several years ago.
 PCY has added $317.3 million in new assets this year, a total exceeded by just three other PowerShares ETFs.
&ldquo;Fed tightening, a Chinese yuan devaluation or economic slowdown, and a renewed slump in oil prices are all risks to the EM story. We see the Fed remaining dovish through mid-year. Yet risks could return in the second half as U.S. rates increase and China&rsquo;s credit-fueled growth improvement slows,&rdquo; cautioned BlackRock. 
Disclosure: Todd Shriber owns shares of VWO.

Opportunity Beckons With Emerging Markets ETFs

Year-to-date, emerging markets exchange-traded funds are displaying superiority over their Europe counterparts. For example, the Vanguard Emerging Markets Stock Index Fd (NYSE: <a class="ticker" href="/stock/vwo#NYSE">VWO</a>) and the iShares MSCI Emerging Markets Indx (ETF) (NYSE: <a class="ticker" href="/stock/eem#NYSE">EEM</a>) (the two largest emerging markets ETFs) are both up 2.8 percent, while marquee Europe ETFs are in the red.
<h3>Pressure And Catalysts</h3>
Europe ETFs have been plagued by disappointments from the European Central Bank and structural concerns regarding banking systems in some major eurozone markets. Although some new reforms and regulations are seen as steps in the right direction for the eurozone&#39;s fractured banking systems, the time it takes for investors to realize the rewards of such efforts can be trying on their patience.
Conversely, rebounding currencies and commodities prices have lifted emerging markets ETFs. Those performances have been enough to encourage investors to enter ETFs like EEM and VWO after a couple of years of pulling money from those funds. Investors&#39; renewed affinity for emerging markets ETFs was on display last month.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/04/7793134/getting-paid-the-emerging-markets-way">Getting Paid The Emerging Markets Way</a></bzrelatedlink>
&ldquo;Willing to take on more risk in March, investors put $5.6 billion of fresh money into well-diversified emerging market equity ETFs and $1.5 billion into sovereign emerging market bond ETFs, according to Factset data. However, investors reduced their exposure to previously popular European equity ETFs,&rdquo; said <a href="http://trymsatoday.com/">S&amp;P Capital IQ</a> in a note out Tuesday.
<h3>Spotlight On PCY</h3>
Emerging markets bond ETFs, such as the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>), are catching investors&#39; attention again as the dollar weakens and the hunt for yield remains strong.
Emerging markets governments and some corporations binge borrowed in dollars during the various versions of the Fed&#39;s quantitative easing programs. It looked smart as the dollar weakened against a plethora of developed and emerging currencies, but those emerging markets borrowers were <a href="http:// http://www.benzinga.com/trading-ideas/long-ideas/16/03/7773623/pedal-to-the-metal-for-these-bond-etfs">caught off guard when </a>the dollar started soaring several years ago.
PCY added $137 million in new assets last month and is in the upper echelon of PowerShares ETFs for assets added this year.
&ldquo;The biggest overall asset gatherer in March was iShares MSCI Emerging Markets (EEM), a $25 billion ETF that swelled with the addition of $4.6 billion of inflows. EEM, which trades approximately 70 million shares on a daily basis with a tight $0.01 bid/ask spread and a 0.69 percent expense ratio, tends to be used primarily by institutional investors, who prefer it to other emerging market ETFs. The inflows in March erased the outflows the product faced in the first two months of the year,&rdquo; said S&amp;P Capital IQ. 
Disclosure: Todd Shriber owns shares of VWO.
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In Battle For Assets, Emerging Markets ETFs Topped Europe Rivals In March

No, that headline is not referencing U.S. government bond exchange-traded funds; although, given the stellar performances turned by such funds this year, it is a good guess. Rather, the headline references a once fragile asset class and its corresponding ETFs: dollar-denominated emerging markets bonds.
Circle back to the various instances of taper tantrums over the past several years prior to the Federal Reserve raising rates for the first time in nearly a decade in December, and ETFs such as the iShares JPMorgan USD Emer Mkt Bnd Fd ETF (NYSE: <a class="ticker" href="/stock/emb#NYSE">EMB</a>) and the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: <a class="ticker" href="/stock/pcy#NYSE">PCY</a>) displayed their vulnerability to even slight speculation that the Fed could be nearing hawkish action.
<h3>Quantitative Easing, Emerging Markets And Hawkish Action</h3>
The situation was pretty easy to figure out. Emerging markets governments and some corporations binge borrowed in dollars during the various versions of the Fed&#39;s quantitative easing programs. It looked smart as the dollar weakened against a plethora of developed and emerging currencies, but those emerging markets borrowers were caught off guard when the dollar started soaring several years ago.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/trading-ideas/long-ideas/16/03/7773619/with-europe-etfs-sometimes-it-pays-to-stay-local">With Europe ETFs, Sometimes It Pays To Stay Local</a></bzrelatedlink>
Things are better for dollar-denominated emerging markets bonds this year, as highlighted by the average 4.8 percent year-to-date return offered by EMB and PCY. That matches the performance of the Vanguard Emerging Markets Stock Index Fd (NYSE: <a class="ticker" href="/stock/vwo#NYSE">VWO</a>), the largest emerging markets equities ETF. Not only that, but emerging markets debt has turned in better performances than a surprising a cast of rivals.
<h3>Dollar-Denominated Emerging Markets Bonds</h3>
&ldquo;Since January 2016, dollar denominated EM sovereigns and corporates have returned 4.3 percent and 3.2 percent respectively, according to <a href="https://www.google.co.uk/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;uact=8&amp;ved=0ahUKEwikg9nijebLAhXGhHIKHS3sD6UQFggcMAA&amp;url=https%3A%2F%2Fwww.markit.com%2FProduct%2FIBoxx&amp;usg=AFQjCNE2un091blCAG7dhme4Omnn6e03Fg&amp;sig2=g6i90_SU6EH3v_jSbknGTQ&amp;bvm=bv.117868183,bs.1,d.bGQ">Markit&rsquo;s iBoxx indices</a>. The returns surpass those of developed markets, beating US treasuries (2.7 percent), German bunds (3.6 percent) and US investment grade bonds (2.9 percent),&rdquo; said Markit <a href="http://www.markit.com/Commentary/Get/29032016-Credit-Dollar-emerging-market-bonds-steam-ahead">in a new research note</a>.
EMB and PCY compensate investors for the risk that comes along with emerging markets bonds as these ETFs sport 30-day SEC yields of 5.1 percent and 5.6 percent, respectively. EMB is a bit more traditional in its constitution as Mexico, Russia, Indonesia and Turkey combine for about 23 percent of that ETF&#39;s weight.
To get through PCY&#39;s top 10 holdings, investors will see bonds issued by the governments of Latvia, Serbia and Morocco, among others, but 53 percent of that ETF&#39;s lineup is rated BBB, A or AAA. PCY has an effective duration of 8.4 years, while EMB&#39;s is just over seven years.
&ldquo;Sovereign bonds have enjoyed a more sustained rally over the past two months. The Markit iBoxx USD Emerging Markets Sovereign&rsquo;s index has enjoyed above average returns for the past X consecutive, with the past two months featuring in the top list for monthly returns post financial crisis. The only other consecutive months in the list are from late 2013, as emerging markets rallied post &#39;taper tantrum&#39; fears,&rdquo; added Markit.
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