PowerShares adds emerging markets to fundamentals-weighted fixed income ETF line-up

May 16th, 2013 | By | Category: ETF and Index News

Invesco PowerShares, a global provider of exchange-traded funds (ETFs), has announced the launch of the PowerShares Fundamental Emerging Markets Local Debt Portfolio ETF (PFEM). The fund provides investors with exposure to emerging market sovereign debt denominated in local currencies.

PowerShares adds emerging markets to fundamentals-weighted fixed income ETF line-up

PowerShares recently celebrated 10 years in the ETF industry.

It has been listed on the NYSE Arca and is linked to the Citi RAFI Bonds Sovereign Emerging Markets Extended Local Currency Index.

The fund expands PowerShares’ fundamentals-weighted fixed-income line-up, which currently includes ETFs targeting the high-yield and investment-grade corporate markets.

Unlike most fixed income ETF indices, which typically use some form of market-cap weighting, the new fund’s index is weighted based on constituent country’s economic footprint. This approach results in a portfolio that is correlated to a country’s capacity to service debt, rather than a function of the amount of debt it has issued.

Andrew Schlossberg, head of US distribution & global ETFs at Invesco, said: “Emerging market sovereign debt represents an attractive asset class potentially offering investors higher yields and lower debt-to-GDP ratios relative to most developed markets. Consistent with our leadership position in providing a value-added approach, the PowerShares Fundamental Emerging Markets Local Debt Portfolio (PFEM) is the first ETF to provide investors a fundamentals-weighted exposure to emerging market sovereign debt denominated in local currencies.”

Shane Shepherd, senior vice president and head of fixed-income research at Research Affiliates, one of the firms behind the fund’s underlying index, added: “Weighting by fundamentals gives higher portfolio weights to issuers with lower leverage and better debt service capacity, resulting in generally lower credit risk compared to the cap-weight benchmark. In addition, a regular rebalance back to fundamental weights takes advantage of potential market inefficiencies in credit spreads by buying cheaper bonds and selling more expensive ones.”

The Citi RAFI Bonds Sovereign Emerging Markets Extended Local Currency Index measures the return of a portfolio of local currency bonds issued by the national governments of 18 emerging market countries, as selected by Research Affiliates and Citigroup.

The index currently includes bonds issued by the national governments of Brazil, Chile, China (Offshore), Colombia, the Czech Republic, Hungary, Indonesia, Israel, Malaysia, Mexico, Peru, the Philippines, Poland, Russia, South Africa, South Korea, Thailand and Turkey.

The fund has an expense ratio of 0.50% and is expected to issue monthly distributions.

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