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Citi has added an emerging markets index to its fixed income index family. The newly launched Citi Emerging Markets Government Bond Index (EMGBI) measures the performance of fixed-rate, local currency sovereign bonds.
The index has been developed for use as a performance gauge and benchmark and as an underlying index for passive investment products such as exchange-traded funds (ETFs).
The index currently comprises 233 bonds from 14 countries globally including Brazil, Chile, Colombia, Hungary, Indonesia, Malaysia, Mexico, Peru, Philippines, Poland, Russia, South Africa, Thailand, and Turkey.
Citi classifies a country to be emerging if it is defined by the IMF to be among ‘emerging and developing economies’ or if it is defined by the World Bank to be among ‘low-income economies’, ‘lower-middle-income economies’ or ‘upper-middle-income economies’
Entry criteria for the index include a minimum amount outstanding of a market’s eligible issues of at least $10 billion, and a domestic long-term credit rating of C by either S&P or Moody’s. Accessibility of bonds and markets, and replicability of returns are additional requirements.
Three emerging markets currently ineligible for inclusion – China, India, and Sri Lanka – will form a set of Citi EMGBI Additional Market Indices. These markets will be monitored for inclusion to the main Citi EMGBI if specific criteria are met.
Anil Prasad, Global Head of FX and Local Markets at Citi, said: “Citi is committed to providing relevant instruments to investors. We leverage our research expertise, coupled with our index construction discipline to create benchmarks that provide investors with a point of reference for evaluation of their portfolio’s performance.”
Richard Burns, Global Head of Citi Fixed Income Indices and The Yield Book, added: “We are delighted to add these emerging market indices to our government bond index series, and believe this will provide investors the opportunity to gain exposure to growing economies.”
Citi fixed income indices are used widely by the investment community and have been licensed for use in numerous ETFs, listed both in the US and in Europe. London-listed examples include the iShares Global Government Bond UCITS ETF (IGLO), which is linked to the Citi Group-of-Seven (G7) Index, and the SPDR Citi Asia Local Government Bond ETF (ABND), which is linked to the Citi Asian Government Bond Investable Index.
One of the most recent launches of a Citi-linked fixed income ETF is the PowerShares Fundamental Emerging Markets Local Debt Portfolio ETF (PFEM), which listed on the NYSE Arca in May. This fund is linked to the Citi RAFI Bonds Sovereign Emerging Markets Extended Local Currency Index, a fundamentally weighted bond index co-developed by smart beta specialists Research Affiliates and Citi.
Alternative indices in this space include the Barclays EM Local Currency Government Index, the Markit iBoxx Global Emerging Markets Local Currency Bond Index and the JP Morgan Government Bond Index Emerging Markets Global Core Index.