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WisdomTree, the New York City-based issuer best known for its dividend and earnings weighted ETFs, is at the product development front again with its latest launch. This time, WisdomTree has expanded its offering in the emerging market bond space, a segment where the company was one of the first to see the potential and investor demand. The company began with the Emerging Markets Local Debt Fund ( ELD - ETF report ) and its Asia Local Debt Fund ( ALD - ETF report ) but now looks to round out exposure to developing nations with its Emerging Markets Corporate Bond Fund ( EMCB - ETF report ) .
This brand new fund is the first and currently only way investors have to target corporate fixed income securities that are from emerging nations across the globe. Given the increased interest in emerging market securities of all stripes, the product could see huge interest from those seeking to round out exposure in the emerging market space beyond government securities. “WisdomTree is pleased to offer the first Corporate Bond ETF that offers access to a rapidly growing asset class, the debt of a broad array of quality corporate issuers in the emerging markets,” said Bruce Lavine, President & COO of WisdomTree. “These bonds are supported by the same favorable growth rates, attractive demographics, and improving fundamentals which have driven strong relative returns in emerging market assets in general.”
EMCB In Focus
The new fund consists of roughly 30 securities in total with exposure stretching across the globe. With that being said, Latin American securities certainly are a big chunk of assets in the fund as three of the top six spots are occupied by the region. This includes the top weighting to corporate bonds from Brazil (25.9%), a third place weighting to Mexico (11.8%), and a 6.1% weighting in Colombian securities. Beyond these nations, bonds from Russia (17.6%), Hong Kong (7.4%), and Korea (6.4%) round out the top six (read Time To Get Regional With Bond ETFs).
Currently, top industry groups include oil & gas which make up roughly 35% of the fund, iron/steel (10%), and then telecom at about 9.5% of total assets. Investors should also note that the fund has a heavy focus on investment grade securities although not the top echelon. Instead, securities rated ‘BBB’ take the top spot at 25.4%, and are then followed by ‘A’ and ‘BB’ rated bonds which have weightings of 19.8% and 18.3%, respectively.
Unfortunately, yield metrics were not yet available on the fund although the product looks to have higher payouts than comparable American corporate debt thanks to a weighted average coupon of 6.0%. Yet, while yield figures weren’t there for investors, the average years to maturity was, coming in at about 7.9 years, giving it a mid to short term focus. Lastly, it should also be noted that the fund looks to charge investors 60 basis points a year in fees, a level far higher than many U.S.-centric products, although EMCB is the only one with an emerging market focus (see Ten Best New ETFs Of 2011).
Emerging Market Bond ETFs
The new launch from WisdomTree looks to give investors yet another option in the emerging market bond world, while possibly also increasing yield (and risk) as well. Currently, there are ten other broad products in the space—including the China bond market—for investors to choose from. Before the launch of EMCB, the main choice that investors had to make was if they wanted bond denominated in local currencies or U.S. dollars. The local currency bonds offer up greater opportunities in terms of performance if the dollar maintained its downward trajectory while dollar securities are potentially safer and more widely traded than some of their counterparts (read Three Overlooked Emerging Market ETFs).
Now, however, investors have to consider the corporate side of the equation in the emerging markets space as well. Given that the space has seen significant inflows in the developing economy Treasury space—three funds have more than a billion in assets including one that has more than $4 billion in AUM—corporate bonds should have no trouble seeing similar levels of asset accumulation as well. As a result, we fully expect this product to be a very popular ETF in short order, especially for those looking for higher yields in the emerging market bond space (see Top Three Emerging Market Consumer ETFs).
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