VanEck lowers fees for two emerging market bond ETFs

Jun 11th, 2018 | By | Category: Fixed Income

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VanEck has lowered the expense ratios on two of its emerging market bond ETFs, the VanEck Vectors JP Morgan EM Local Currency Bond ETF (EMLC US) and VanEck Vectors Emerging Markets Aggregate Bond ETF (EMAG US).

Fran Rodilosso, head of fixed income ETF portfolio management at VanEck.

Fran Rodilosso, head of fixed income ETF portfolio management at VanEck.

The expense ratio for EMLC has been reduced from 0.42% to 0.30%, while EMAG has seen its expense ratio fall from 0.49% to 0.35%.

The firm said these latest fee reductions allow investors to benefit from the potential opportunities emerging markets debt provides within a portfolio, at a lower cost.

Fran Rodilosso, head of fixed income ETF portfolio management at VanEck, commented, “Emerging markets debt has evolved into an important asset class over the past several decades, and we believe it warrants a strategic allocation within investors’ portfolios. It is a diverse asset class offering multiple opportunities, and offers the potential to provide significant diversification benefits.”

EMLC is the largest and most liquid US-listed ETF providing access to emerging market local currency bonds. The fund currently has assets under management of $4.6 billion. A London-listed version (ELMC LN) launched in April 2017 and has $50 million in AUM and also currently costs 0.30%.

EMLC tracks the JP Morgan GBI-EMG Core Index, which consists of bonds issued by emerging markets governments that are denominated in the local currency of the issuer.

The fund currently consists 276 government bonds from emerging market issuers across all corners of the globe. The fund’s largest geographic weight is Brazil (9.7%), followed by Indonesia (9.1%), Mexico (9.1%), Poland (8.7%) and South Africa (8.7%).

As for credit quality, over half of EMLC’s securities (53.9%) are investment grade, with non-investment grade at 17.9% and unrated securities making up the balance. The average portfolio maturity is currently 7.7 years, with individual bond maturities throughout the yield curve.

EMLC has an effective duration of 5.1 years and yield-to-worst of 6.9%.

EMAG is the only US-listed ETF that provides comprehensive exposure to the full emerging market debt opportunity set. It tracks the MVIS EM Aggregate Bond Index, which is composed of emerging market sovereign bonds and corporate bonds denominated in US dollars (57%), euros (6%), or local emerging market currencies (37%).

EMAG currently holds 169 bonds split amongst emerging market government issuers (57.9%) and a range of corporate bond sectors, including energy (12.8%), financials (10.3%) and communications (5.8%). The fund holds 64.7% in investment grade bonds, 27.0% in non-investment grade bonds, and 8.3% in unrated bonds.

The fund covers bonds across the yield curve, although it has a slightly lower average portfolio maturity of 6.6 years.

EMLC has an effective duration of 4.6 years and yield-to-worst of 5.2%.

In addition to EMLC and EMAG, VanEck also manages several other emerging market debt offerings, including the VanEck Vectors Emerging Markets High Yield Bond ETF (HYEM US)VanEck Vectors EM Investment Grade + BB Rated USD Sovereign Bond ETF (IGEM US), and VanEck Vectors ChinaAMC China Bond ETF (CBON US).

True to its history of fostering new investment products, VanEck recently filed a request with the US Securities and Exchange Commission (SEC) for a physically backed bitcoin ETF. The filing is currently under review with the SEC.

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