Pimco, the US bond giant, has teamed up with European specialist ETF provider Source to launch the Pimco Emerging Markets Advantage Local Bond Index Source ETF (EMLB). The London-listed fund offers high quality, diversified exposure that is representative of the countries driving emerging markets growth.
Unlike many existing emerging market (EM) local debt indices, the fund’s underlying index, the Pimco Emerging Markets Advantage Local Currnency Bond Index, bases country allocation on national income (GDP) and a country’s capacity to service its debt. This results in significant allocation to key global economies, including China and India.
According to Chris Getter, Senior Vice President and Emerging Markets Product Manager at Pimco, GDP weighting is particularly appropriate for global bond investing: “Unlike traditional debt market capitalisation indices, which reflect past patterns of issuance, Pimco’s GDP weighting is forward‐looking. It emphasises growing economies with strong fundamentals where there may be new opportunities.”
Many emerging market economies have stronger growth prospects and face fewer concerns about debt sustainability than their developed market counterparts, while at the same time offering higher yields. Additionally, local currency bond markets are now larger and more liquid than external debt markets and offer potential for currency appreciation.
Commenting on the launch, Source CEO Ted Hood said: “An emerging market benchmark without exposure to India or China is no longer a credible proposition. Through our partnership with Pimco, we can deliver a product that marks a significant improvement on existing benchmarks for EM local debt”.
The fund is physical replicated and registered for sale in the UK, Germany, Ireland, Luxembourg, Norway and Sweden. It is in the process of being passported to Austria, France, Finland Italy (for institutional investors only) and the Netherlands.
The fund comes with an annual management fee of 0.60%.
Other London-listed ETFs offering exposure to emerging market debt include:
SPDR Barclays Capital Emerging Markets Local Bond ETF
iShares Barclays Capital Emerging Market Local Govt Bond ETF
iShares JPMorgan $ Emerging Markets Bond Fund ETF
db X-trackers Emerging Markets Liquid Eurobond Index ETF