Kevin Grewal: Despite the economic uncertainty that continues to prevail in Europe, New York-based ETF provider, Van Eck Global, recently filed plans to launch two new ETFs that will enable investors to play the European bond markets.
According to the filings with the Securities and Exchange Commission, the first fund is expected to be the Market Vectors Sovereign Bond ETF which is expected to be designed to track the performance of local currency-denominated bonds of sovereign issuers located in Europe, excluding Russia. Furthermore, bonds eligible for inclusion in the Index must be issued by European country governments, sovereigns, quasi-sovereigns or government-backed entities and must be rated “Baa3” or above by Moody’s or “BB-” or above by S&P or Fitch for long-term debt obligations and equivalent ratings for short-term debt obligations.
The second fixed-income ETF is expected to enable investors to access high yield European bonds. The Market Vectors European High Yield Bond ETF is expected mimic the performance of the Market Vectors European High Yield Bond Index, which is comprised of local-currency denominated bonds of issuers located in Europe, except for Russia. The ETF is expected to give exposure to high yield bonds of nearly 45 different European nations, making it a diversified play on the region.
Although incorporating international fixed income ETFs to a portfolio can add diversification, it is important to consider the risks that continue to prevail in the euro-zone. The European region remains financially fragile as European banking stocks continue to be downgraded by Moody’s and the yield on Irish, Greek, Portuguese and Spanish government bonds continue to increase. With this in mind, one should think twice about implementing the aforementioned ETFs into an overall investment strategy.
Written By Kevin Grewal From ETF Tutor Disclosure: No Positions
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative 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. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.