Bond ETFs are anticipated to impel asset development for exchange-traded items in the forthcoming years. Based on few estimates, bond ETFs could probably have USD2 trillion in assets under management by the year 2020. The bond ETFs have contributed for almost 1/3rd of the total inflows to exchange-traded items this year.
However, the asset growth of bond ETF is not just being driven by standard fare like investment-grade corporate or United States Treasuries. Amidst weak rates of interest in the United States, improving quality of credit in developing markets and waning quality of credit for few European sovereign issuers, the bond ETFs of emerging markets are drawing strong inflows this year.
There’s nothing to be surprised about, because the respectable yields can be seen even on few of the more conventional bond ETFs of emerging markets. The iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSE: EMB) has a trailing twelve month yield of 4.3%. On the other hand, the trailing twelve moth yield of PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE: PCY) is 4.7%. Both these ETFs hold debt denominated in dollars.
PCY and EMB have effortlessly surpassed the more conventional bond funds year-to-date like the Vanguard Total Bond Market ETF (NYSE: BND), iShares Core Total U.S. Bond Market ETF (NYSE: AGG), and PIMCO Total Return ETF (NYSE: BOND) by huge margins.
As for July, the bond ETFs of emerging markets contributed to USD15.5 billion of assets in total fixed income exchange-traded items, as per latest data from iShares.
The segment has taken in more than USD6 billion in total new assets in 2012 till now and accounts for almost 5 percent of the global fixed income ETP, as stated by BlackRock’s (iShares’ parent company) Head of Global ETP Market Trends Research, Dodd Kittsley.
The investor demand has been met by ETF issuers for more emerging markets debt items with aplomg. As noted by Kittsley, approximately 20% of the 57 bond ETPs of emerging markets on the market made their debut this year. These fresh funds provide more revelation to more than sovereigns denominated in dollar and several are turning out to be successful inspite of the narrow focus.
The corporate debts of emerging markets have been one amongst the quickly growing areas of the bond space in the past few years. The corporate debt of all the emerging markets, including the high-yield issues, held a net market value of USD1 trillion as of May, staying on parity with the United States junk bond market, as per Barclays.