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ETF Specialist

A Morningstar Medalist Offering Exposure to Emerging-Markets Bonds

This fund offers broad diversification and boasts a sizable cost advantage over its peers.

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IShares JPMorgan USD Emerging Markets Bond ETF (EMB) is a solid choice for low-cost exposure to U.S.-dollar-denominated emerging-markets government bonds. The strategy earns a Morningstar Analyst Rating of Silver because it accurately represents the composition of the market and is one of the cheapest funds in the emerging-markets bond Morningstar Category.

Emerging-markets economies face a lot of idiosyncratic risks, and the bonds issued by their governments and agencies perform more like high-yield corporate issues than U.S. Treasuries. They are more sensitive to credit risk and suffer more severe drawdowns. While in theory this should create an opportunity for actively managed funds to exploit mispricing, the JPMorgan EMBI Global Core Index (the category index), has not been any easy bogy to beat. Historically, investors interested in adding exposure to this area of the bond market would have done well to settle for an index fund. Over the 10 years through June 2020, there was only one fund in the category that outperformed the category index on a risk-adjusted basis.

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Neal Kosciulek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.