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iShares, the global leader in ETF assets and total number of funds, appears to be continuing its bond ETF push with its latest SEC filing. In the release, the company revealed plans for a new emerging market bond fund, targeting the quickly growing region of Latin America.
If ever approved, the fund would be just the second U.S. product to target the space in ETF form, offering investors a new way to play the region. The potential launch would also continue iShares’ attempt at bond ETF dominance as six of the last seven funds that the company has put out have been in the fixed income world (read Top Two Emerging Market USD Bond ETFs Head-to-Head).
Below, we highlight some of the main data points from this recent filing from the San Francisco-based ETF giant. While some key details weren’t released—expense ratio and ticker symbol were unavailable—we have taken a look at some of the other key aspects from the fund’s initial filing document:
The iShares Latin America Bond Fund looks to track the Barclays Latin America Bond Index which tracks the U.S. dollar denominated bond markets of corporate, sovereign, and quasi sovereign issuers domiciled throughout Latin America. At the end of last month, the index consisted of just over 300 different bonds (read Go Local With Emerging Market Bond ETFs).
The underlying index consists of both investment grade and junk bonds but does not include strips, inflation-linked securities, warrants, or convertibles. Investors should also note that the index requires a minimum of $300 million par outstanding for investment grade securities and at least $150 million for junk securities.
In terms of country exposure, the product includes exposure to 17 nations including Mexico and those in Central America, South America, and the Caribbean. At the end of the last month, the top five countries represented in the index were Brazil, Mexico, Venezuela, Colombia, and Chile (also see the Seven Biggest Bond ETFs By AUM).
Latin America Bond ETF Competition
Currently, there is only one other ETF focused on the Latin American bond market, the Market Vectors Latin America Aggregate Bond ETF . This product debuted about one year ago but has failed to see a great level of inflows having amassed just $7.3 million in AUM while doing volume of about 2,800 shares a day.
Nevertheless, the product could still be an interesting option for many investors who want to have a greater focus on the space as the ETF has a yield north of 5.3% and modest fees of 49 basis points a year. Still, the bid ask spreads, thanks to the low trading volume and illiquidity of some of the underlying holdings, could add to the total overall cost of the product (see The Guide to China Bond ETFs).
Investors should also note that BONO has a roughly 50-50 split among corporate and federal debt with a similar breakdown when it comes to high yield and investment grade securities. In terms of countries, Mexican and Brazilian bonds combine to account for roughly 60% of assets while Colombian and Venezuelan securities combine to comprise another 20% of the total.
While the total amount of assets in the space is still quite small, investors are clearly starting to embrace emerging market bond ETFs overall. The space has seen steady inflows but the majority has been in broad products targeting notes across the globe (read Are The Fundamental Bond ETFs Better Fixed Income Picks?).
Eventually, this seems likely to change as investors demand greater granularity from their fixed income portfolio in the same way that many investors need it for their equity holdings. Once that happens, this proposed fixed income fund from iShares could be an interesting competitor to BONO for domination of the Latin America bond ETF space.
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