ETFs: Emerging Market Bonds Become Important Part of Many Portfolios

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May 5, 2011 12:49pm NYSE:CSJ NYSE:MUB

Emerging market bonds have become a large part of many investors’ portfolios in recent years. This can be attributed to an increase in the credit quality of the bonds of foreign countries and


 companies. These bonds generally offer higher yields than T reasury bonds and domestic corporate bonds. ETFs that track this market allow investors to diversify across many international regions and across countries of various size and economic strength.

Recently, Emerging Market Bond ETFs have performed well when compared to other Fixed Income Assets. With a trend score of 2.21%, Emerging Market Bond ETFs, represented by PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE:PCY) have shown improvement in recent periods. This can be attributed to the continued growth and economic strengthening of many developing nations along with the desire by many investors to move money away from developed nations that have encountered economic trouble.

Fixed Income Return Table

4/29/2011

Assets Class Symbols 04/29
Trend
Score
04/21
Trend
Score
Direction
International Inflation Protected (WIP) 9.22% 7.53% ^
International Treasury (BWX) 6.82% 4.91% ^
High Yield (JNK) 5.68% 5.88% v
Inflation Protected (TIP) 3.27% 2.89% ^
Long Term Credit (LQD) 2.87% 2.43% ^
Emerging Mkt Bonds (PCY) 2.21% 1.52% ^
Intermediate Term Credit (CIU) 2.06% 1.74% ^
California Muni (CMF) 1.99% 0.42% ^
MBS Bond (MBB) 1.83% 1.32% ^
US Total Bond (BND) 1.77% 1.39% ^
10-20Year Treasury (TLH) 1.73% 1.02% ^
Intermediate Treasury (IEF) 1.65% 1.06% ^
20+ Year Treasury (TLT) 1.63% 1.12% ^
National Muni (MUB) 1.24% 0.84% ^
Short Term Credit (CSJ) 1.09% 0.89% ^
Short Term Treasury (SHY) 0.53% 0.46% ^
New York Muni (NYF) 0.51% 0.06% ^
Treasury Bills (SHV) 0.07% 0.09% v

The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

In the past year, ETFs tracking Emerging Market Bonds have offered investors strong performance, slightly above historical levels. EMB iShares JPMorgan USD Emerging Markets ETF (NYSE:EMB) lead within the sector, growing 9.3% in the past year. Over the past three years EMB has returned 7.44%. Another strong performer in Emerging Market Bond ETFs has been PCY PowerShares Emerging Markets (NYSE:PCY), gaining 8.7% in the past year, slightly above its three year growth of 8.32%.

Emerging Market Bonds

4/29/2011

Description Symbol 1 Year 3 Years
EMB iShares JPMorgan USD Emerg Mkt EMB 9.3% 7.44%
PCY PowerShares Emerging Mkts PCY 8.7% 8.32%

As developing economies continue to improve, Emerging Market Bond ETFs will remain an important part of a well-diversified portfolio. With developed nations like the United States, Japan, and certain European countries experiencing economic instability, market participants will likely continue moving towards emerging market assets like Bond ETFs.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Written By The Staff Of MyPlanIQ.com

LTI Systems, Inc. is the operator of MyPlanIQ.com and ValidFi.com. The founders of LTI Systems have extensive technology and business background in computer and semiconductor industries. They have been using the strategies provided by MyPlanIQ for their own personal retirement and taxable investments. The mission of LTI Systems is to make wealth management investment strategies that are used to be only accessible to institutions and high net worth individuals available to private investors with a fraction of flat cost and ease of use. The founders of LTI Systems, investors themselves, take pride in creating such a system and service for investors by taking the perspective from the investor side. They are using the system and the strategies for their own investment and align their interests with their customers.  

MyPlanIQ’s blog provides periodical articles to discuss issues related to retirement plans (401(k), 403(b) and IRAs), deferred compensation plans (457), college savings plans (529), taxable brokerage investment accounts, variable annuities and universal life insurance plans. It also covers investment strategies, specifically strategic and tactical asset allocation and investment products such as ETFs and mutual funds. In addition, it syndicates daily articles that are related to retirement planning, personal finance, investment strategies, annuities, insurance, college savings and market/economic outlooks. It provides a comment and discussion community for readers.


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