State Street Global Advisors (SSGA) has launched a new fixed income ETF in the US, providing exposure to US dollar-denominated bonds from emerging market issuers.
SSGA has launched a new ETF providing exposure to USD bonds from emerging market issuers.
The SPDR Bloomberg Barclays Emerging Markets USD Bond ETF (EMHC US) has listed on NYSE Arca and comes to market with $36 million in assets.
The fund is linked to the Bloomberg Barclays Emerging USD Bond Core Index which consists of fixed-rate debt issued by sovereign and quasi-sovereign (government-owned and government-guaranteed) emerging market issuers.
Eligible bonds must have a minimum par amount outstanding of $500m, a remaining maturity of at least two years, and an original maturity greater than five years.
The index excludes high-quality bonds with credit ratings of AA- or above as well as very low-quality issues with ratings of CCC- or below – considered to be extremely speculative or at imminent risk of default.
According to SSGA, the fund may provide investors with an attractive source of income as well as potential diversification benefits due to the low historical correlation between emerging market debt and other global bond sectors.
The fund is currently yielding 4.99% and has an effective duration of 8.12 years.
Sue Thompson, Head of SPDR Americas Distribution at SSGA, commented: “With yields relatively low across US bond markets, investors are increasingly looking elsewhere to generate income. Emerging market debt has seen solid growth over the last decade; however, we believe many investors may be under-allocated to this asset class.
“EMHC provides a convenient and cost-effective means to access emerging market debt while guarding against short-term fluctuations in the dollar.”
The fund comes with an expense ratio of just 0.23% which is lower than the 0.25% charged by the $2.7 billion Vanguard Emerging Markets Government Bond ETF (VWOB US), one of the lowest-cost ETFs targeting USD emerging market debt.
The largest ETF in the category is the $18.0bn iShares JP Morgan USD Emerging Markets Bond ETF (EMB US) which costs 0.39%.
SSGA offers two other emerging market bond ETFs including the $1.2bn SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (EBND US), which provides passive exposure to bonds issued in local emerging market currencies, and the $100m actively managed SPDR DoubleLine Emerging Markets Fixed Income ETF (EMTL US).
Noel Archard, Global Head of SPDR product at SSGA, said: “The SPDR Bloomberg Barclays Emerging Markets USD Bond ETF complements our existing line-up of emerging market debt ETFs. EMHC meets demand from clients who are attracted to the benefits of emerging market debt but concerned about the potential impact of local currency depreciation.”