Emerging market bonds have been one of the best-performing asset classes over the last few years and for good reason. They offered exposure to high yields, strong underlying economies and a healthy diversification away from the Western debt crisis.
However, we believe this story has further to run. Inflows to the asset class remain strong and valuations are still attractive on a relative basis. Although outright yields are low with the benchmark 10 year gilt offering just 2.2%, emerging market yields at 6.2% still look attractive.
Please find attached complimentary research on our preferred method of gaining access to this interesting asset class – the iShares Emerging Markets Local Gov Bond ETF. This exchange traded fund trades on the London Stock Exchange in sterling, has a total expense ratio of just 0.5% and currently boasts an index Gross Redemption Yield of 6.7%, with an index maturity of 7.5 years.
With 82% of the fund’s bonds being investment grade, we recommend the holding to medium-term investors seeking fixed interest with a medium attitude to risk.