VanEck announced that it has launched a new exchange-traded fund designed to give investors exposure to investment grade U.S. dollar-denominated sovereign emerging markets bonds...
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The VanEck VectorsTM EM Investment Grade + BB Rated USD Sovereign Bond ETF (NYSE Arca: IGEM) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the J.P. Morgan Custom EM Investment Grade Plus BB-Rated Sovereign USD Bond Index.
For investors seeking income, U.S. dollar-denominated EM investment grade sovereign bonds have historically proven attractive, delivering a yield premium of 49 basis points over U.S. dollardenominated corporate investment grade bonds, and 220 basis points over 10-year U.S. Treasuries over the last five years1,” said Fran Rodilosso of VanEck, who will act as one of the portfolio managers for the fund. “In the case of IGEM, a minimum of 80 percent of the portfolio is generally invested in investment grade rated bonds, but it can also include up to 20 percent in BB-rated bonds, while avoiding countries rated single-B and below.
And, because these bonds are denominated in dollars, U.S.-based investors limit exposure to EM local currency volatility,” said Rodilosso.
With global bond yields reaching new lows, and an increasing amount of negative yielding government bonds, investors have turned to higher yielding asset classes to add income to their portfolios. However, investors must balance the incremental yield achieved with the additional risks associated with these investments, such as credit or currency risk.
“By focusing on the higher rated subset of the market, IGEM can potentially provide yield enhancement, without adding a significant amount of credit or currency risk, to income-oriented investors’ portfolios,” Rodilosso noted. IGEM has a gross expense ratio of 0.45% and a net expense ratio of 0.40%, which is capped contractually until September 1, 20171.
IGEM joins VanEck’s suite of emerging markets bond ETFs, which includes VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (NYSE Arca: EMLC), VanEck Vectors Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), and VanEck Vectors Emerging Markets Aggregate Bond ETF (NYSE Arca: EMAG).