The VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (NYSE: EMLC) is an exchange-traded fund (ETF) with a different focus than most other broad-based emerging markets funds.
Whereas many other funds are focused on investing in the equity markets, EMLC tracks the J.P. Morgan GBI-EMG Core Index, which is comprised of bonds issued by emerging-market governments and denominated in the local currency of the issuer. The fund, with $2.28 million in assets, selects fixed-rate, domestic currency government bonds expiring in 10 years or less from each of the emerging market countries.
Since all of the bonds that EMLC holds are issued by the governments, they carry less default risk (i.e. the risk of a company going out of business) than the typical equity-holding emerging markets fund. However, bonds are more directly affected by interest rate changes than equities, leaving EMLC with a higher interest-rate risk than its equity-holding emerging-market counterparts. Another key difference is that bonds pay guaranteed interest, whereas stocks do not guarantee dividends.
EMLC has had a tremendous year so far, with an overall return of 11.35% versus S&P 500’s 5.79%. There has been considerable fluctuation on the path to that return, however, as the fund’s return dipped by 0.94% just this past month. The fund has a dividend yield of 5.00% and an expense ratio of 0.47%.
The ETF’s top holdings are bonds issues by the governments of Chile, Brazil, Indonesia and the Philippines. EMLC is well diversified with a total of 258 holdings, with only 14% of assets in its top 10 holdings.
Since EMLC provides investors with exposure to the debt market by purchasing bonds denominated in the local currencies of issuance, it makes the fund susceptible to swings in the foreign currency market. On the other hand, EMLC has balanced geographical coverage and a stable monthly distribution that should appeal to those seeking consistent income from a diverse group of emerging governments. If these qualities meet your needs and you are comfortable with the currency risk, consider looking into VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (NYSE: EMLC).
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