From the July 2011 issue of Research Magazine • Subscribe!

Van Eck Tackles Latin Debt

Van Eck Global has just unveiled an emerging markets bond ETF tied to Latin American debt.

The Market Vectors LatAm Aggregate Bond ETF (BONO) is linked to the BofA Merrill Lynch Broad Latin America Bond Index (LATS), an index consisting of a portfolio of sovereign and corporate debt securities issued by Latin American issuers and denominated in dollars, euros and the local currencies of the issuers.

“Local debt markets in Latin America have been maturing quickly in recent years,” says Jan van Eck, principal at Van Eck Global. “Governments have limited their reliance on borrowing abroad, infrastructure projects are proliferating throughout the region, and better transparency has led to improved sovereign credit ratings. These factors, coupled with the relatively high yields currently offered by Latin American bonds, have served to increase foreign investment demand for the region’s sovereign and corporate debt.”

As of end-April, the BONO’s underlying index included 453 constituents with top country allocations as follows: Brazil 36.52 percent, Mexico 29.03 percent, Colombia 12.19 percent, Venezuela 6.50 percent and Argentina 4.17 percent. The index is market cap weighted subject to a 20 percent cap on individual issuer exposures.

The Market Vectors Emerging Markets Local Currency Bond ETF (EMLC) also invests in emerging markets debt, but with exposure to a basket of emerging countries around the world. EMLC carries a distribution yield of 5.93 percent and the fund has increased by 4.05 percent since the beginning of the year.  

Even for all its potential, investing in emerging market bonds is a risky proposition. Currency risk, credit risk, and the fact that many of these local bond markets are still developing are factors.

BONO carries a net expense ratio of 0.49 percent and expenses are capped contractually until September 1, 2012. Monthly income distributions for BONO are planned.

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