Canadian asset manager Mackenzie Investments has launched a new ETF that provides exposure to local currency debt from emerging market government issuers.

Mackenzie Investments has launched a local currency emerging markets bond ETF on the Toronto Stock Exchange (file image).

The Mackenzie Emerging Markets Local Currency Bond Index ETF (QEBL CN) has listed on Toronto Stock Exchange and comes with a management expense ratio (MER) of 0.45%.

It becomes the cheapest emerging market bond ETF domiciled and listed in Canada.

The fund is likely to appeal to investors who are willing to accept a higher level of risk in a bid to achieve higher yields.

The advantage of emerging market debt denominated in local currencies is that it allows investors to diversify away from the US dollar. This can be beneficial in periods when the greenback is expected to decline over the investment horizon.

Michael Cooke, Senior VP and Head of ETFs, Mackenzie Investments, commented, “Improved debt dynamics within emerging countries, and a positive long-term outlook for emerging markets as a whole, combine to make this asset class a particularly attractive one for investors seeking to diversify and grow their portfolios.”

Methodology

The fund is linked to the Solactive EM Local Currency Government Bond Select NTR Index which covers fixed-rate and zero-coupon bonds from sovereign issuers.

Bonds must be denominated in the country’s local currency and meet minimum size requirements. They must also be able to settle on Euroclear or Clearstream.

Treasury bills, Brady bonds, floating-rate notes, inflation-linked bonds, bank capital bonds, and securitized bonds are not eligible.

Eligible countries are those defined as emerging markets by Solactive’s Country Classification Framework, excluding Saudi Arabia, South Korea, and Taiwan.

Constituents are weighted by market value outstanding and country exposure is capped at 10%.

The new launch complements the Mackenzie Emerging Markets Bond Index (CAD-Hedged) ETF (QEBH CN) which listed on TSX earlier this year. This fund is linked to the Solactive EM USD Govt & Govt Related Bond Select CAD Hedged NTR Index and provides exposure to US dollar-denominated bonds issued by emerging market governments. It too comes with a management expense ratio of just 0.45%.