Last week, Brazil officially eliminated a tax that affected foreign buyers of Brazilian government bonds. The elimination of the tax represents positive news for exchange-traded funds (ETFs) with exposure to Brazilian government debt. And while there isn’t yet a pure-play Brazilian government bond ETF on the market, a number of funds are set to benefit, most notably those that provide access to emerging markets local currency debt.
‘ Pimco ’
Eaton Vance is seeking authorisation to launch a family of actively managed exchange-traded funds (ETFs). The funds, which Eaton Vance calls exchange-traded managed funds, or ETMFs, are designed to bring the cost and tax efficiencies and shareholder protections of ETFs to active investment strategies, while maintaining the confidentiality of current portfolio trading information. If approved, the proposed fund structure could provide a template for the widespread roll-out of active ETFs, which, until now, have been slow to gain traction.
Institutional market influence was most prominent within the equity exchange-traded fund (ETF) space in 2012, with institutional investors holding roughly one-half of total equity ETF assets, according to a report from Strategic Insight, a mutual fund research firm. Institutional presence was heaviest within international equity ETFs, particularly those providing exposure to emerging markets, accounting for an estimated 57% of total assets (with individual investors and their financial advisors owning 43% of assets).
Source has announced that the Pimco Short-Term High Yield Corporate Bond Index Source ETF has been listed in GBP on the London Stock Exchange. The new listing complements the existing USD trading line and provides GBP-denominated investors with easy access to this Pimco-managed fixed income strategy. The fund physically tracks the performance of the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index, offering investors an attractive level of income with mitigated interest rate risk.
AdvisorShares, a US-based sponsor of actively managed exchange-traded funds (ETFs), has teamed up with San Francisco-based Newfleet Asset Management to launch the AdvisorShares Newfleet Multi-Sector Income ETF (MINC). The fund’s objective, resembling that of the Pimco Enhanced Short Maturity Strategy ETF (MINT), is to provide current income consistent with preservation of capital, while limiting fluctuations in net asset value due to changes in interest rates.
The Market Vectors Emerging Markets Local Currency Bond ETF (EMLC) has surpassed $1.5 billion in assets under management, adding more than $500 million in the last three months alone. When the fund was brought to market in July 2010 on the NYSE Arca, it was the first US-listed exchange-traded fund designed to provide investors with exposure to an index that tracks a basket of bonds issued in local currencies by emerging market governments.
Sterling has come under pressure in the FX market as traders ditch the currency following Friday’s downgrade of the UK by credit rating agency Moody’s. The currency is likely to face continued pressure in the coming weeks. While all this generally spells bad news for UK holiday makers and importers, further weakness represents a potential opportunity for currency traders. An effective way to capitalise on this opportunity is via leveraged exchange-traded products (ETPs).
Global investment manager Pimco has unveiled the Pimco Foreign Currency Strategy ETF (FORX), listed on the NYSE Arca. The California-based investment giant concludes that rising debt levels, limited fiscal flexibility and easy monetary policy in the US may weigh on the dollar for years. The actively managed exchange-traded fund has been created to offer investors the potential to diversify away from the US dollar and benefit from fundamental changes in global currency dynamics.
All the talk lately has been about whether we’re nearing the end of the bond bull market. However, Fran Rodilosso, a fixed income portfolio manager at Market Vectors ETFs, reckons that while investors need to accept that many traditional fixed income investments are unlikely to deliver the same types of returns as in 2012, there are still great opportunities to find if investors look in the right places. Emerging markets local debt is one of these places, according to Rodilosso.
Declining bond yields have created the potential for a ‘bond bubble’ under which rising interest rates could result in significant losses for fixed income investors, according to Fitch Ratings. So how should investors handle this? One option is to get out of bonds altogether. But, considering the diversification role bonds play and the income they offer, this is not entirely sensible or indeed practicable. A more moderate response would be to focus on shorter-duration bonds, which are less sensitive to interest rate rises.