New ETF gives exposure to emerging market bonds
With the hunt for yield pushing investors into emerging market debt, a new exchange traded fund tracking inflation-linked local bonds is launched
The ETF tracks the Barclays EM Inflation-Linked 20% Capped Index, which includes inflation-linked government bonds in domestic currency issued by Brazil, Mexico, Chile, South Africa, Poland, Turkey, Israel, Korea and Thailand.
The new ETF was launched by SPDR ETFs, the platform for exchange traded funds of State Street Global Advisors (SSGA).
"The SPDR Barclays EM Inflation-Linked Local Bond UCITS ETF gives investors simplified access to a diversified portfolio of local currency inflation-linked bonds for the very first time," Scott Ebner, global head of product development for SSGA, said in a statement announcing the new instrument. "Investors are increasingly looking for ways to diversify their emerging markets exposure beyond traditional equity allocations and are cognizant of prospective inflationary pressures."
The International Monetary Fund (IMF) warned last week that extremely low interest rates in the developed world, caused by quantitative easing by major central banks, were pushing money into riskier assets such as corporate bonds in emerging markets. It said the rapid increase in investor appetite for these assets was exposing emerging markets companies to currency risk and leverage risk.
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The market for emerging markets inflation-linked bonds has grown over the past 10 years, with the number of issuers doubling and the number of issues increasing threefold, according to a Barclays study in February this year.
The Barclays EM Inflation-Linked 20% Capped Index limits country exposure to a maximum of 20%, redistributing the excess market value index-wide on a pro-rata basis. Data from Barclays showed that, as of March 1, Brazil and Mexico had 20% of the weight each, followed by Turkey with 19%, Israel with 17% and South Africa with 12%.
The SPDR Barclays EM Inflation-Linked Local Bond UCITS ETF will be traded on the Deutsche Boerse. It will also be listed on the London Stock Exchange.
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