VanEck targets yield with new investment-grade emerging markets fund

By Susanna Moon

Chicago, July 14 – VanEck has added an exchange-traded fund to its lineup that tracks investment-grade dollar-denominated sovereign emerging market bonds, directed at investors searching for yield.

The VanEck Vectors EM Investment Grade + BB Rated USD Sovereign Bond ETF (NYSE Arca: IGEM) is based on the J.P. Morgan Custom EM Investment Grade Plus BB-Rated Sovereign USD Bond index, according to a company announcement.

“For investors seeking income, U.S. dollar-denominated EM investment-grade sovereign bonds have historically proven attractive, delivering a yield premium of 49 basis points over U.S. dollar-denominated corporate investment grade bonds and 220 basis points over 10-year U.S. Treasuries over the last five years,” Fran Rodilosso of VanEck, fund portfolio manager, said in the press release.

“In the case of IGEM, a minimum of 80% of the portfolio is generally invested in investment grade rated bonds, but it can also include up to 20% in BB-rated bonds, while avoiding countries rated single-B and below.”

“And, because these bonds are denominated in dollars, U.S.-based investors limit exposure to EM local currency volatility,” Rodilosso added.

The fund has been launched as global bond yields hit new lows and investors seek to “balance the incremental yield achieved with the additional risks associated with these investments, such as credit or currency risk,” the release noted.

IGEM has a gross expense ratio of 0.45% and a net expense ratio of 0.40%, which is capped contractually until Sept. 1, 2017.

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