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While emerging market debt was among the worst performing fixed income asset classes in 2022, investors are bullish on the sector this year. After China relaxed its zero-covid policy, data from BofA Global Research shows that investors pushed a record $12.7 billion in capital in emerging market debt and equity funds for the week ending Wednesday, January 18.

Agreed BondBloxx Investment Management, the negative performance of total returns was mainly due to interest rates due to their long profile. That’s why the fixed-income specialist advises investors looking for debt exposure in emerging markets to consider the short term.

“A shorter duration approach to EM investing remains our recommendation to reduce both interest rate and spread duration risk, as the shorter duration approach has outperformed during historical market downturns.” BondBloxx 2023 Fixed Income Market Outlook.

It BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD) seeks to track the investment performance of an index composed of short- and intermediate-term U.S. dollar-denominated emerging market bonds, excluding bonds with maturities greater than 10 years.

“XEMD is designed to enable fixed income investors to better manage their duration exposure when investing in emerging market debt,” said JoAnne Bianco, client portfolio manager at BondBloxx.

XEMD’s index, the JP Morgan EMBI Global Diversified Liquid 1-10 Year Maturity Index, is constructed without significant country or sector deviations from the full index. The index has a shorter duration than other broad market emerging market bond benchmarks, resulting in potential performance advantages in rising interest rate environments.

Compared to the JP Morgan Emerging Market Bond Index Global Diversified Index, the JP Morgan EMBI Global Diversified Liquid 1-10 Year Index is approximately 2.75 years shorter. It is also significantly shorter than the Bloomberg US and Global Aggregate Indexes, as well as the Bloomberg US Corporate Index, while being similar in duration to the Bloomberg US High Yield Index.

XEMD is one of 19 fixed income ETFs that BondBloxx has launched since February 2022, which also includes seven industry-specific high-yield bond ETFs, three rating-specific high-yield bond ETFsand: Eight US Treasury Target ETFs.

Launched in October 2021 to provide accurate ETF exposure for fixed income investors, BondBloxx was founded by ETF industry leaders Leland Clemons, Joanna Gallegos, Tony Kelly, Mark Miller, Brian O’Donnell and Elijah Schwartzman. Together, the team has created and launched over 350 ETFs at companies including BlackRock, JPMorgan, State Street, Northern Trust and HSBC.

For more news, information and analysis, visit Channel of Institutional Income Strategies.


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