Global X has introduced its first actively managed ETF with the launch of a strategic emerging markets debt fund.
Luis Berruga, CEO at Global X.
The Global X Emerging Markets Bond ETF (EMBD US) has listed on NYSE Arca and comes with an expense ratio of 0.39%.
The fund is sub-advised by Global X affiliate Mirae Asset Global Investments.
It invests primarily in US dollar-denominated debt but may, to a lesser extent, also hold securities denominated in local emerging market currencies.
Fixed- and floating-rate debt instruments issued by sovereign, quasi-sovereign, and corporate entities from emerging market countries are all eligible for inclusion. And both investment-grade and high-yield bonds may be included in the portfolio.
Country allocation will be based on a top-down analysis that considers factors including economic indicators and conditions, industry structure, terms of trade, political environment, and geopolitical issues. The weight of any individual country in the portfolio will be limited to 20%.
The ETF’s managers then conduct a bottom-up relative valuation analysis on sovereign and corporate issues to tactically identify potential opportunities.
With a total market size of $26 trillion, emerging market debt represents more than 20% of the global bond market and is a common fixture in income-oriented portfolios. As of 3 June, the ETF was yielding 5.4% with an effective duration of 9.7 years. Income is distributed to investors on a monthly basis.
In addition to offering higher yields, emerging market bonds also provide significant diversification potential.
According to research from Bloomberg, while the segment has displayed a relatively high correlation (+0.71) to non-EM high yield, it is negatively correlated with US equities (-0.55), investment-grade corporate bonds (-0.58), REITs (-0.63), MLPs (-0.65), and fixed-rate preferred shares (-0.72).
Emerging market bonds do tend to be riskier, however, than other segments in the fixed income landscape. US dollar-denominated sovereign EM bonds have displayed average annual volatility of 8% over the past ten years compared to approximately 6.9% for high-yield corporate bonds and 6.2% for investment-grade corporate bonds.
Luis Berruga, CEO of Global X ETFs, commented, “With this new launch, we are seeking to combine the expertise of seasoned emerging market investors with the efficiency, transparency, and tradability of an ETF.
“The core pillar of our business is on delivering products that will serve as solutions for investors’ needs – it is our belief that the best way to access this important income-oriented asset class is through active management. We believe the extensive support across the Mirae Asset organization should be a crucial advantage for our investors in accessing these ever-changing markets. We’re thrilled to bring their skill set to our investors.”
The launch brings the number of ETFs within Global X’s Income suite to 18 with other funds offering exposure to high dividend payers, preferred shares, master limited partnerships, and covered call strategies.