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The Case for Emerging-Market Bond ETFs

These funds allow investors to diversify their portfolios away from the U.S. and gain exposure to far-flung currencies.

NEW YORK (

TheStreet

) -- As developing nations continue to draw lots of attention, some investors may want to consider investing in emerging-market debt.

For some time, many investors have been turning to emerging markets mainly due to their aggregate size and expected stronger growth compared with the U.S. In fact, a recent study indicates that 97% of the world's population, 75% of its economic production and nearly 67% of its stock market capitalization is outside the U.S.

Additionally, the

Fed Reserve's

decisions to keep interest rates at historically low levels to prevent a double-dip recession and the U.S. government's record deficits create the potential for the dollar to fall significantly against other currencies, further adding to the appeal of investing in developing nations.

Emerging-market debt has many of the same positive forces as emerging-market equity, but some observers suggest that it offers investors the same diversification with less risk. What's more, it's denominated in local currencies as opposed to dollars. Emerging-market bond funds enable investors to play hard-to-reach currencies like the Malaysian ringgit and the Philippine peso.

Although the outlook for these markets seems to be bright, it is equally important to keep in mind that these markets can fall quickly. A good way to protect onself from downside risks is through the use of an exit strategy that uses price points at which an upward trend could come to an end. Such price points can be found at

www.SmartStops.net

.

An easy way to gain exposure to emerging-market debt is through the following ETFs:

TheStreet Recommends

The

iShares JP Morgan USD Emerging Markets Bond Fund

(EMB) - Get Report

, which boasts a yield of 5.7% and gives exposure to sovereign debt in Russia, the Philippines and Turkey. EMB closed at $100.38 on Tuesday.

The

PowerShares Emerging Markets Sovereign Debt Fund

(PCY) - Get Report

, which boasts a yield of 6.4% and gives exposure to Ukraine, Indonesia and Venezuela. PCY closed at $25.23 on Tuesday.

According to the latest data at www.SmartStops.net , the price points at which an uptrend in these ETFs could come to an end are: EMB at $99.52 and PCY at $24.96. These price points fluctuate as market conditions change and updated data can be found at www.SmartStops.net.

-- Written by Kevin Grewal in Laguna Niguel, Calif.

At the time of publication, Grewal had no positions in equities mentioned.

Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.