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VanEck launches sovereign EM bonds ETF


VanEck has launched an ETF designed to give investors exposure to investment grade US dollar-denominated sovereign emerging markets (EM) bonds. 

The VanEck VectorsTM EM Investment Grade + BB Rated USD Sovereign Bond ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the J.P. Morgan Custom EM Investment Grade Plus BB-Rated Sovereign USD Bond Index.
“For investors seeking income, US dollar-denominated EM investment grade sovereign bonds have historically proven attractive, delivering a yield premium of 49 basis points over US dollar-denominated corporate investment grade bonds, and 220 basis points over ten-year US Treasuries over the last five years ,” says Fran Rodilosso of VanEck, who will act as one of the portfolio managers for the fund.
“In the case of IGEM, a minimum of 80 per cent of the portfolio is generally invested in investment grade rated bonds, but it can also include up to 20 per cent in BB-rated bonds, while avoiding countries rated single-B and below. And, because these bonds are denominated in dollars, US-based investors limit exposure to EM local currency volatility,” says Rodilosso.
The firm writes that with global bond yields reaching new lows, and an increasing amount of negative yielding government bonds, investors have turned to higher yielding asset classes to add income to their portfolios. However, investors must balance the incremental yield achieved with the additional risks associated with these investments, such as credit or currency risk. “By focusing on the higher rated subset of the market, IGEM can potentially provide yield enhancement, without adding a significant amount of credit or currency risk, to income-oriented investors’ portfolios,” Rodilosso noted.
IGEM has a gross expense ratio of 0.45 per cent and a net expense ratio of 0.40 per cent, which is capped contractually until September 1, 2017. 

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