iShares has listed the first ETF in Europe that provides access to emerging market corporate bonds denominated in US dollars.
The launch comes as investors increasingly recognise the value of taking a passive approach to fixed income, and responds to demand for a greater choice of exposures within the asset class.
The iShares Morningstar $ Emerging Markets Corporate Bond ETF provides broad and diversified exposure to US dollar denominated debt issued by corporates based in Latin America, Eastern Europe, the Middle East, Africa and Asia. iShares worked closely with the index provider to construct a high quality, investible index which incorporates built-in liquidity screens and a cap to ensure no single issuer accounts for more than 5% of the fund.
The amount of dollar-denominated debt issued by emerging market corporates has increased dramatically in the last decade. Corporates issued USD188bn of bonds in 2011, more than twice the level of debt issued by emerging market governments in dollars. As issuance has grown, credit quality improved and liquidity increased, the opportunity set for investors has expanded.
A US domiciled fund with the same exposure listed simultaneously on BATS today. The portfolios for both funds will be managed by iShares’ fixed income team in San Francisco to leverage local expertise.
Axel Lomholt (pictured), Head of iShares Product Development EMEA, says: “Emerging market corporate bonds provide an opportunity over the long term to capture the next stage in the growth and development of these countries. This area of fixed income offers investors the potential for attractive total returns as well as a strong income stream, and our new ETF is the first of its kind in Europe to deliver this exposure in a single, cost-efficient trade. As interest in fixed income ETFs continues to grow, we will expand our product range further with high quality funds that deliver transparent and liquid access to areas of the market.”