Tuesday, August 31, 2010

Emerging Markets Bond ETFs Soar

While there have been pockets of strength in emerging markets for equities (see links below), emerging markets bonds have been even stronger performers in 2010, both on an absolute and risk-adjusted basis. In fact, if one compares the chart of emerging markets bonds below, the gap between emerging markets and developed markets looks strikingly similar to what was seen on the equity side in Chart of the Week: Rethinking Geography.

I first wrote about PCY (the PowerShares Emerging Markets Sovereign Debt Portfolio ETF) back in October 2008 in the context of an indicator of the strength of the global economic in general and emerging markets in particular. Since that time, PCY has been an extremely strong performer, gaining 35.6% in 2009 and adding another 13.0% so far in 2010. Along the way, PCY has attracted completion in the form of EMB, the iShares USD Emerging Market Bond ETF, which was up 15.4% in 2009 and is up 11.5% year-to-date in 2010. Of course both PCY and EMB have been able to post these excellent returns with only a fraction of the risk of their equity market counterparts.

For comparison sake, I have also included two international bond ETFs that have a much higher weighting in developed markets than emerging markets. Of these two the more liquid is SPDR Barclays Capital International Treasury Bond ETF (BWX); the S&P/Citigroup International Treasury Bond ETF (IGOV) is a relative newcomer. A shorter duration option in this space is the S&P/Citigroup 1-3 Year International Treasury Bond ETF (ISHG).

It may be a global marketplace, but geography continues to have a strong influence over local and regional risk and reward. Without the sovereign debt problems, zombie banks and housing bubbles, emerging market debt is an attractive place to diversify a portfolio and capture a relatively high yield, such as the 5% or so currently available from PCY.

Related posts:


[source:ETFreplay.com]

Disclosure(s): long PCY at time of writing

blog comments powered by Disqus
DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2013 Bill Luby. All rights reserved.
 
Web Analytics