iShares Competes in Emerging-Market Bond ETFs

PowerShares was the first to list an emerging-market bond ETF, the Emerging Market Sovereign Debt Portfolio(PCY Quote), earlier this year. Now there is some competition: the iShares JPMorgan USD Emerging Markets Bond Fund (EMB Quote).

A little competition and choice is always a good thing where funds are concerned.

As a philosophical matter, I believe in constructing a portfolio with the attributes that EMB and PCY offer (low correlation, equity-like returns and decent yield), because over time the result should be a smoother ride to a very similar result. But in trying to choose between the two, I give the nod to PCY.

Like PCY, EMB holds dollar-denominated bonds, so holders are neither hurt nor helped by currency fluctuations.

EMB also has a relatively small number of holdings, at 35; although it's not quite as small as PCY's 25 holdings.

It's important to understand that both ETFs hold fewer bonds than their underlying indices. In the case of EMB, its underlying index has 112 issues in total. Having this flexibility will make it easier to create new shares of the fund, which of course would entail buying more bonds.