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iShares Unveils Emerging Market Corporate Bond ETF
The biggest problem with the new ETFs especially ones that target very narrow segments is the lack of volume which causes wide bid-ask spreads. I would stay away from any ETF until there is sufficient daily volume. Invest in open end mutual funds instead.
WisdomTree also has a new U.S.-$ EM corporate bond etf like the iShares etf in that headline - EMCB. It's just under $60mm in assets with a volume of ~ 18,000 and a bid-ask of 0.12%.
EM bond etf's are popping up like edelweiss in the high meadows of the Alps. Like the edelweiss in the Sound of Music, those etf's would be happy to meet you, too.
While the costs are less (but not a lot less) than actively-managed funds, we will continue to use active managers like Hasenstab, Finkelstein, and Carlson, at least for now. Their experience negotiating the vast world of em bonds, and Hasenstab's and Finkelstein's knowledge of currencies is almost impossible to duplicate in a passively-managed structure, at least now. As for the ETFs, you really need to READ the descriptions of the index each one uses. Keep in mind that these indexes were CREATED for the funds, in most cases. These are not simple descriptions. I just think there are an awful lot of variables and market inefficiencies in this sector right now. And, as Investor points out, the small volume for these could be very problematic.
Reply to @AndyJ: I believe 18K is pretty small volume. Even in this case this case bid/asked spread is low now, in a panic such small volume will definitely lead to widening gap in some cases market price is not tracking the NAV at all if the market maker declines to close the gap by using the arbitrage mechanism. This has been the case before in financial crisis with some high yield ETFs, even corporate ETFs. I expect it to happen again.
Reply to @BobC: totally agree, BobC. This is one of the asset classes, together with high yield, micro caps and a few more, when the active management is more effective.
Reply to @Investor: Hi investor, a rule of thumb I've seen referenced several places is a minimum of $100 mm assets, 50,000-share average volume to be on the safe side. So yes, I agree 18k is small volume - but I was a little surprised that the bid-ask is that low, even now. That particular etf is brand new; the broader-based W'Tree etf's seem to pile up assets pretty quickly, though.
I don't buy low-volume etf's either: their price movements are too unpredictable for me.
A couple of W'Tree's etf's are actively managed, ELD being one, and PCY, the etf Kenster linked to, has a volume of 593,000 plus. So, not all etf's in the space are passive or low-volume. That said, good active OEF managers are certainly more flexible, especially with currency exposure, than you're going to find in any etf in the space.
Correct, EMB and PCY are not low volume - and they're well over $1B in assets.
I'm in the camp of sharing between Index ETFs and Managed funds. For example - in the EM equity space I also use Wisdomtree's DEM to combine with my other Managed Funds that hit the Emerging Markets. That space can be ridiculously expensive and so DEM helps to moderate the costs and DEM has also done very well.
I've heard the same old story before --- T.Rowe Price EM Stock Fund, Excelsior EM Fund, Acadian EM Fund, etc. are great funds and I would want a smart manager navigating the treacherous EM world....I heard this for several years in the past. Many EM funds have underperformed and those that have done well over the long-term like Acadian EM Fund, shook-off and steered away many investors because of the massive volatility it had.
I've seen it also before with DODGX, TAVFX, TASCX and the list goes on and on --- they were considered very smart investment navigators. Again, I've also heard praises for how good and how smart the Excelsior EM fund managers were --- really? I see utter underperformance.
Remember Janus Midcap Value Fund? That was a fund favorite and the talk of the town for several years with outperformance even when it moved to become the Perkins Midcap Value Fund. Now if I look at the 3, 5 and 10 year returns --- I don't see anything special?
Yes there are some unique and worthwhile managed funds including funds from Hassenstab but I also use ETFs too as a joint solution to hedge my bets & lower costs.
Comments
EM bond etf's are popping up like edelweiss in the high meadows of the Alps. Like the edelweiss in the Sound of Music, those etf's would be happy to meet you, too.
PowerShares Emerging Mkts Sovereign Debt PCY has $1.7B
WisdomTree Emerging Markets Local Debt ELD has $1.25B
Here's the factsheet of PCY which looks pretty interesting and unique:
http://www.invescopowershares.com/pdf/P-PCY-PC-1.pdf
And of course - Vanguard will be debuting their EM Bond Fund & ETF later this year. I like the ETF which will have a 0.35% ER.
I prefer >100K daily volume if not much better.
I don't buy low-volume etf's either: their price movements are too unpredictable for me.
I'm in the camp of sharing between Index ETFs and Managed funds. For example - in the EM equity space I also use Wisdomtree's DEM to combine with my other Managed Funds that hit the Emerging Markets. That space can be ridiculously expensive and so DEM helps to moderate the costs and DEM has also done very well.
I've heard the same old story before --- T.Rowe Price EM Stock Fund, Excelsior EM Fund, Acadian EM Fund, etc. are great funds and I would want a smart manager navigating the treacherous EM world....I heard this for several years in the past. Many EM funds have underperformed and those that have done well over the long-term like Acadian EM Fund, shook-off and steered away many investors because of the massive volatility it had.
I've seen it also before with DODGX, TAVFX, TASCX and the list goes on and on --- they were considered very smart investment navigators. Again, I've also heard praises for how good and how smart the Excelsior EM fund managers were --- really? I see utter underperformance.
Remember Janus Midcap Value Fund? That was a fund favorite and the talk of the town for several years with outperformance even when it moved to become the Perkins Midcap Value Fund. Now if I look at the 3, 5 and 10 year returns --- I don't see anything special?
Yes there are some unique and worthwhile managed funds including funds from Hassenstab but I also use ETFs too as a joint solution to hedge my bets & lower costs.