EMAG will provide exposure to all four major categories of EM bonds. That includes both sovereign and corporate bonds issued in both U.S. dollars and local currencies. EMAG also takes its diversification one step further and includes both investment-grade and below-investment-grade rated securities. Typically, investors needed to add a separate emerging market junk bond fund — like the iShares Emerging Markets High Yield Bond (EMHY) — if they wanted high yield exposure as well.
A Great One-Stop Shop
Given that it’s the only broad emerging market debt fund covering all aspects of the sector, EMAG could be the best way to add these bonds to a portfolio. Aside from taking the guess work out of which bonds to hold and in what percentages — a huge win in itself — EMAG also delivers on the cost front as well.
First, even if investors wanted to split 50/50 on their USD and local currency bonds, that requires two funds and double the trading costs. Secondly, despite their sizes, most emerging market debt funds are very expensive on the operating cost front. The previous mentioned EMB and ELD cost 0.60% and 0.55% in expenses, respectively.
Even with its broad holdings, EMAG will cost just 0.49% — or $49 per $10,000 invested to own.
That low expense ratio makes it one of the cheapest options in the sector to own, period. Even then its cheaper rival — the Vanguard Emerging Markets Government Bond ETF (VWOB) — only holds USD government bonds. There’s not any corporate or local currency exposure to be had in VWOB.
With its lower expenses and broad all-encompassing mandate, EMAG offers one of the best one-stop shops for investors looking to emerging market bonds to portfolio.
As of this writing, Aaron Levitt was long EMHY, EMB and its local currency twin — the iShares Emerging Markets Local Currency Bond (LEMB). However, he may switch to EMAG as trading volume picks up steam and assets grow.