iShares JP Morgan Emerging Market Local Government Bonds ETF

A great income provider, this low cost bond ETF is an excellent way to invest in a broad basket of emerging market fixed income.

Emerging market assets are inherently higher risk than those of developed markets, and that is reflected in the higher yield for holding EM assets, and the potential for high overall returns.

As western central banks, alongside those in Japan, have driven bond yields to record low levels with as series of rate cuts and quantitative easing programmes, emerging market bonds present themselves as an attractive option for income-seeking investors.

The ongoing 0.5 per cent charges of this ETF also allow for investors to retain more of the returns yielded by the underlying asset, when compared to traditional fund options. For instance, the Templeton Emerging Bond Fund and the First State Emerging Bond Fund charge ongoing fees of 1.88 per cent and 1.42 per cent, respectively.

Ultimately, the ETF contains a basket of treasuries included in JP Morgan’s Emerging Markets Local Government Bond Index including issues ranging from Brazil, Mexico, Poland, South Africa, Colombia, Thailand and Chile.

The broad spread of allocation provides a satisfactory level of diversification throughout the EM bond universe, so those less attractive bonds from countries such as Chile who have experienced only 1.6 per cent GDP growth are offset by the strong prospects of South Africa, which is undergoing its own political shifts, and Peru, which is enjoying a natural resource-driven expansion.

Additionally, the higher yield of the included bonds allows the fund to provide a 4.6 per cent yield, paid biannually.