Van Eck Global has just unveiled an emerging markets bond ETF tied to Latin American debt. The Market Vectors LatAm Aggregate Bond ETF (NYSE: BONO) is linked to the BofA Merrill Lynch Broad Latin America Bond Index (LATS), an index consisting of a portfolio of sovereign and corporate debt securities issued by Latin American issuers and denominated in U.S. Dollar, Euro and local currencies of the issuers.
“Local debt markets in Latin America have been maturing quickly in recent years,” said Jan van Eck, Principal at Van Eck Global. “Governments have limited their reliance on borrowing abroad, infrastructure projects are proliferating throughout the region, and better transparency has led to improved sovereign credit ratings. These factors, coupled with the relatively high yields currently offered by Latin American bonds, have served to increase foreign investment demand for the region’s sovereign and corporate debt.”
As of April 30, the BONO’s underlying index included 453 constituents with top country allocations as follows: Brazil 36.52%, Mexico 29.03%, Colombia 12.19%, Venezuela 6.50% and Argentina 4.17%. The index is market-cap weighted subject to a 20% cap on individual issuer exposures.
The Market Vectors Emerging Markets Local Currency Bond ETF (NYSE: EMLC) also invests in emerging markets debt, but with exposure to a basket of emerging countries around the world. EMLC carries a distribution yield of 5.93% and the fund has increased by 4.05% since the beginning of the year.
Even for all its potential, investing in emerging market bonds is a risky proposition. Currency risk, credit risk, and the fact that many of these local bond markets are still developing are factors.
BONO carries a net expense ratio of 0.49%. Expenses are capped contractually until September 1, 2012 and exclude certain expenses, such as interest.
Monthly income distributions for BONO are planned.
Van Eck Global is based in New York, NY, and manages $23 billion in 34 ETF funds.
Other New ETF Launches
InvescoPowerShares launched two volatility focused ETFs linked to the S&P 500 (NYSE: SPY).
The PowerShares S&P 500 High Beta Portfolio (NYSE: SPHB) contains 100 stocks from the S&P 500 Index with the highest sensitivity to market movements, or beta, over the past 12 months as determined by Standard & Poor’s. SPHB is linked to the S&P 500 High Beta Index.
Opposite SPHB is the PowerShares S&P 500 Low Volatility Portfolio (NYSE: SPLV) which consists of the 100 stocks from the S&P 500 Index, with the lowest realized volatility over the past 12 months.
Index constituents for both ETFs are rebalanced quarterly.
The PowerShares ETFs were introduced on May 5, 2011 and have annual expense ratios of 0.25%.
Finally, First Trust launched a new ETF that targets mega cap stocks. The First Trust Mega Cap AlphaDEX Fund (NYSE: FMK) uses various factors to rank and select stocks from the S&P US BMI universe.
The fund charges annual expenses of 0.70%.
