Return To A Once Beleaguered Emerging Market Asset Class
The iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ: EMB), the largest emerging markets bond ETF, is up 5 percent year-to-date and has nearly recouped all of last year’s 5.5 percent loss.
EMB and the broader emerging markets debt complex were plagued last year by multiple factors, some of which came about thank to U.S. monetary policy. Namely, rising U.S. Treasury yields triggered a dollar rally, which plagued dollar-denominated emerging markets bonds, including those held by EMB.
While emerging markets debt is rebounding this year, some market observers believe selloffs present buying opportunities.
“We would be buyers on any material sell-offs, as we see fundamentals remaining supportive in coming quarters,” said BlackRock in a recent note. “Our overall view on emerging markets (EMs) favors equities over debt, yet we believe EMD offers attractive income for bond portfolios.”
Why It’s Important
Home to $17.43 billion in assets under management, it’s clear EMB has a following. One reason for that is yield. The fund has a 30-day SEC yield of 5.34 percent compared with 3.02 percent on the Bloomberg Barclays US Aggregate Bond Index. Even with this year’s rally, valuations on developing debt remain attractive.
“A reason EMD valuations still appear reasonable: The asset class took a hit last year as the Federal Reserve raised interest rates and the U.S. dollar (USD) appreciated. The backdrop for the asset class this year appears very different,” according to BlackRock.
“EMD valuations and income potential are relatively attractive, but the value case is less compelling than it was earlier this year,” said BlackRock. “A relatively stable USD outlook means no clear advantage in hard- over local-currency EMD.”
Over 85 percent of EMB’s 467 holdings are rated BBB, BB or B.
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