Van Eck Global, the US-based sponsor of the Market Vectors range of exchange-traded funds (ETFs), has announced that the Market Vectors Emerging Markets Local Currency Bond ETF (EMLC) has surpassed $1 billion in assets under management.
The NYSE Arca-listed fund, which made its debut in July 2010, has proved popular as investors have looked to emerging markets for both diversification away from the dollar and more attractive yield opportunities.
Fran Rodilosso, one of fund’s two portfolio managers, believes emerging markets will remain a compelling story: “given current higher interest rates coupled with lower debt, smaller deficits, growing productivity and central bank willingness to act in a vigilant manner, certain emerging markets have currencies that appear to be in a far better fundamental state than their G7 counterparts.”
Ed Lopez, Marketing Director for Market Vectors ETFs, added: “We have seen continued interest in emerging market local currency bonds, particularly in light of the third round of quantitative easing (QE3) and its potential negative effects on the US dollar. EMLC has been an excellent and cost-efficient way to quickly add broad exposure to this asset class.”
When EMLC was brought to market, it was the first US-listed ETF designed to provide investors with exposure to an index that tracks a basket of bonds issued in local currencies by emerging market governments.
The index, the JP Morgan GBI-EMG Core Index, provides exposure to bonds issued in local currencies by fifteen emerging market countries: Brazil, Chile, Colombia, Hungary, Indonesia, Malaysia, Mexico, Nigeria, Peru, Philippines, Poland, Russia, South Africa, Thailand and Turkey.
Similar (local currency emerging markets) funds have been launched on the London Stock Exchange in the UK with varying degrees of success. The PIMCO EM Advantage Local Bond Index Source ETF (EMLB), for example, which launched in September 2011, has only managed to accumulate £7.7m, despite its unique GDP-weighted approach, which avoids over allocation to highly indebted countries, and the strong management pedigree of the fund’s manager, PIMCO.
By contrast, the iShares Barclays Capital Emerging Market Local Govt Bond ETF (SEML), which tracks the Barclays Capital Emerging Markets Local Currency Core Government Index, has been hugely successful, building up assets of £615.9m since its inception in June last year.
Similarly, the SPDR Barclays Capital Emerging Markets Local Bond ETF (EMDL), which is based on the Barclays Capital Emerging Markets Local Currency Liquid Government Index and debuted in May 2011, has gathered £379.0m.