Markets

Use KSEMD for shorter exposure to emerging market debt

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

According to BondBlokk Investment Management, the negative performance of total returns was mainly driven by rates due to their long-dated profile. For this reason, the fixed income specialist advises investors seeking exposure to emerging market debt to consider short duration.

“A shorter-duration approach to investing in EM remains our recommendation to reduce both interest rate risk and spread duration risk, as a shorter-duration approach has outperformed during historical market pullbacks,” the statement said. BondBlokk 2023 Fixed Income Market Outlook.

The BondBlokk JP Morgan USD Emerging Markets 1-10 Year Bond ETF (KSEMD) seeks to track the investment performance of an index composed of short- to medium-term emerging market bonds denominated in US dollars, excluding bonds with maturities greater than 10 years.

“KSEMD is designed to give fixed income investors the ability to better manage their exposure when investing in emerging market debt,” said JoAnne Bianco, client portfolio manager at BondBlokk.

KSEMD’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 is also shorter in duration than other emerging market bond benchmarks, resulting in potential relative performance advantages during a rising rate environment.

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

KSEMD is one of 19 fixed income ETFs launched by BondBlokk since February 2022, which also include seven industry sector-specific high-yield bond ETFs, three rating-specific high-yield bond ETFsand eight US Treasury ETFs with target duration.

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

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

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