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Alternative Market Briefing

What's behind the run-up in emerging market bonds?

Tuesday, May 02, 2017

Matthias Knab, Opalesque:

BlackRock writes on Harvest Exchange:

This year has seen a resurgence of interest in emerging market (EM) bonds. Many investors who had been scared off the asset class in the months following the U.S. presidential election moved back in. Initial concerns that protectionist policies could hurt EM economies and investments abated after the new administration stepped into office. As a result the category has done surprisingly well since the start of the year: $3.4 billion has come into EM bond ETFs, and the J.P. Morgan EMBI Global Core Index has returned a robust 5.17%.

This resurgence in interest in EM debt, and the growing popularity of index ETFs as an investment vehicle, has led some to question whether an ETF is an effective way to invest in the asset class. As a category, EM bonds tend to be challenging to manage, with more limited liquidity and higher transaction costs than other sectors of US dollar-denominated debt. Information can also be harder to come by, potentially creating opportunities for astute active managers to outperform. This raises an important core question for investors: Which asset classes have been better suited for index management, and which for active?

Let's take a look at historic EM bond performance and see how the iShares JP Morgan USD Emerging Markets Bond ETF (EMB) has fare......................

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