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Fund Spy

Emerging-Markets Bond Funds: A Look Under the Hood

A growing but still risky group.

Improving country fundamentals, strong long-term performance, higher yields, and diversification benefits have made the emerging-markets bond Morningstar Category one of the fastest-growing categories that Morningstar tracks. Popular as the category has become, investors often don't fully grasp key differences among emerging-markets bond funds. Indeed, such funds tend to follow one of four investment approaches--hard currency (U.S.-dollar denominated), local currency (local-currency denominated), corporate, or some combination of the three.

Below, we examine these four approaches more closely, raise a few points to consider for investors thinking of purchasing an emerging-markets bond fund, and highlight some of our favorite funds in the category.