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A New Way To View Emerging Markets Bonds

by
February 1, 2018 2:23 pm
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With income investors still hunting for yield and developed markets' sovereign debt offering little in the way of impressive yields, emerging markets bonds remain a compelling avenue to juice current income.

Exchange traded funds increase the accessibility of emerging markets bonds. The debut of the JPMorgan USD Emerging Markets Sovereign Bond ETF (NYSE:JPMB) gives income investors a new avenue for tapping developing world debt. J.P. Morgan is the index provider for the iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ:EMB), the largest emerging markets bond ETF, but JPMB is the issuer's first ETF offering exposure to emerging markets debt.

The new ETF follows the JPMorgan Emerging Markets Risk-Aware Bond Index, which features dollar-denominated debt.

A Rules-Based Approach

Traditional fixed-income ETFs are cap-weighted, meaning the largest holdings in those funds are the largest in terms of issue size. JPMB takes a different approach in an effort to bolster credit quality and liquidity, both of which are important issues when accessing emerging markets debt.

The new ETF “utilizes a rules-based, proprietary methodology that filters for liquidity and country risk and allocates risk across credit rating,” according to JPMorgan Asset Management

JPMB holds 140 bonds, and its top 10 holdings combine for about 15 percent of its weight.

“JPMB is managed by an experienced team led by Quantitative Beta Strategies co-portfolio managers Eric Isenberg and Niels Schuehle,” according to a statement. “Additionally, JPMB leverages J.P. Morgan's $470-billion global fixed income platform, which is comprised of over 200-plus sector specialists.” 

Geographic Exposure

JPMB's underlying index can select bonds from a vast number of emerging and frontier markets on every continent but Antartica. 

The new ETF has the flexibility to invest in junk bonds. JPMB charges 0.39 percent per year, or $39 on a $10,000 investment. The fund was seeded with nearly $50 million.

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