EMLC VanEck JP Morgan EM Local Currency Bond ETF

As the ETF world continues to expand, a number of firms are looking to debut more foreign-focused ETFs in underserved market segments. This is especially true in the bond space as this corner of the exchange-traded fund universe makes up roughly 25% of U.S. ETF assets despite comprising just 15% of the total number of funds in the market.

This trend could be continuing in the emerging market bond world, as evidenced by a recent filing by New York-based ETF provider, Van Eck. In the preliminary release, the company, under its Market Vectors-brand, looks to eventually release an Emerging Markets Aggregate Bond ETF and a dollar-denominated version, the Emerging Markets USD Aggregate Bond ETF.

However, investors should note that this is just a very basic filing and some key details—like expense ratios and ticker symbols—were not yet available. With that being said, investors should know that the Aggregate Bond ETF looks to hold both USD denominated as well as locally-denominated securities while the USD Aggregate Bond ETF will focus just on American dollar debt issued by emerging markets (also read Emerging Market Sovereign Bond ETFs: Safe with Attractive Yields).

It should also be pointed out that both sovereign and corporate debt will be included in both funds, should they pass the test of the SEC. Additionally, both of Van Eck’s proposed products will, true to their aggregate nature, hold both investment grade and junk securities, providing exposure across the risk spectrum.

ETF Competition

The battle for supremacy in the emerging market bond world looks to be somewhat intense as currently over $10 billion is invested in just under a dozen funds. This represents a pretty good average fund AUM, and it also suggests that investor interest is quite high in the space.

This could pose somewhat of a problem for Van Eck and its proposed funds in terms of gaining assets, especially if other firms release new products before Van Eck can obtain regulatory approval for its proposed duo. However, it should be noted that many of the most popular funds in the space, including the top fund, the iShares JP Morgan USD Emerging Markets Bond Fund (EMB), only focus on sovereign or corporate fixed income securities (see Top Emerging Market Bond ETFs Head-to-Head).

Thanks to this, the aggregate bond funds proposed by Van Eck could see some serious interest from those who want a more well-rounded exposure profile in their emerging market fixed income holdings. After all, a mix between corporates and sovereigns in fixed income could provide investors with a nice mix of yield and risk that one probably cannot get by just investing in a single product type alone.

While the move will exposure Van Eck to some heavy competition, it could also be a great play by the company to expand its rapidly growing fixed income product lineup. Currently, the company has 13 ETFs in the bond world, comprising nearly $2.6 billion in total AUM (read Go Local with Emerging Market Bond ETFs).

As of right now, the company has a handful of emerging market funds including a very popular Emerging Markets Local Currency Bond ETF (EMLC) which has over $790 million in AUM. This fund is actually the second most popular fixed income fund for Van Eck, so the company will undoubtedly want to expand on this success in the coming months.

However, it should be noted that in addition to the competition highlighted above, EMLC and a number of other Van Eck ETFs could keep some assets away from the proposed funds if they are able to ever hit the market. After all, it remains to be seen how different the indexes will be for the proposed products when compared to the already launched EMLC (see more in the Zacks ETF Center).

Perhaps if there is little overlap and if emerging market fixed income demand remains high, we will see decent inflows for Van Eck’s proposed products, assuming of course that they pass SEC regulations. Either way, it looks like competition in the emerging market bond world is heating up, and that Van Eck intends to be a major player in this increasingly important slice of the ETF market.

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ISHARS-JPM EM B (EMB): ETF Research Reports
 
MKT VEC-EMG MKT (EMLC): ETF Research Reports
 
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