NEW YORK (TheStreet) --An ever-expanding niche in the ETF space is emerging market debt as investors starved for yield look to unfamiliar market segments for their income needs. Investors have two new funds to consider with the Market Vectors Emerging Market Aggregate Bond ETF EMAG and the ProShares Short Term USD Emerging Markets Bond ETF EMSH.
EMAG was converted from the more narrowly focused Market Vectors LatAm Aggregate Bond ETF (LATM). Similar to the iShares Barclays Aggregate Bond ETF (AGG) The word aggregate in the name of the fund refers to the fact that EMAG owns both sovereign and corporate debt. As an administrative note AGG recently changed its name iShares Core Total US Bond Market ETF while keeping the same symbol and investment strategy.
Unusual compared other emerging market debt funds is that EMAG owns some bonds that are denominated in U.S. dollars and some local currency debt. The current currency mix allocates 50% to the U.S. dollar and 50% in foreign currencies. Many emerging market bonds are issued in U.S. dollars to make them more attractive to investors.
The country allocation still tilts to Latin America with almost 10% each to Brazil and Mexico and smaller allocations to Colombia, Venezuela and Peru for a total of 29%. China receives a 7% weighting, Poland 5% with the remaining countries having much smaller weightings.
Sovereign debt comprises 61% of the fund. Debt from financial companies makes up 11% of the fund and 9% in energy companies. The quality breakdown of EMAG favors investment grade at 67%, 19% is non-investment grade with the remainder being unrated debt.