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ETF Specialist

Local Currency Emerging-Markets Bonds: High Yields and Low Interest-Rate Risk

This ETF has become a popular choice for investors looking to diversify their bond holdings.

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 WisdomTree Emerging Markets Local Debt (ELD) is one of the first funds to give investors access to local-currency emerging-markets bonds. With all the concerns about rising debt in the developed markets, investors are increasingly looking to emerging countries for their high growth rates and low comparative debt levels. Emerging markets have traditionally relied on developed countries for demand and financing, but those dynamics have shifted during the past 12 years. Furthermore, an emerging middle class has been creating strong domestic economic growth in these countries, which should bolster a healthy and sustainable rise in sovereign wealth. This has allowed emerging countries to maintain sound fiscal policies, more-flexible currencies, a higher savings rate, and a growing private pension system.

We like this fundamental story, but we are also aware of the tremendous amount of assets that have been flowing into this sector in the last year. This has the potential to also create an overvalued asset class as investors continue to flock to income investments.

Timothy Strauts does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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