First Latin American Bond ETF Launched

Ulli Latin American Bond ETF Contact

Morningstar reports that “Van Eck Launches Latin American Bond ETF.” Let’s look at some highlights:

On Thursday, May 12, Van Eck launched the first exchange-traded fund that holds only Latin American bonds.

Market Vectors LatAM Aggregate Bond ETF (BONO), which charges a net expense ratio of 0.49%, is the ETF world’s latest foray into emerging-markets bonds. The new fund tracks a market-cap-weighted index containing external and local currency Latin American sovereign debt, along with the external debt of nonsovereign Latin American issuers that is denominated in U.S. dollars or euros.

The fund’s appeal to U.S. investors is obvious: It gives investors exposure to emerging markets, and it offers them significantly higher yields (an average coupon of almost 8% and an average yield to worst of 7.2%) than U.S. fixed-income securities. The fund tilts heaviest toward Brazilian debt, which makes up more than 36% of the fund’s holdings. Other significant country representations come from Mexico (29%) and Colombia (12%).

The vast majority of the fund’s holdings are classified as investment grade. Just 15% of holdings are below investment grade, suggesting that the risk to investors of holding BONO should be minimal.

BONO is another arrow in the quiver of investors looking for ways to invest in emerging-markets debt. Obviously, the heavyweight funds in the space–which sport limited but nontrivial exposure to Latin America–are  WisdomTree Emerging Markets Local Debt (ELD) and  Market Vectors EM Local Currency Bond ETF (EMLC). WisdomTree also has its own Latin American bond fund in registration with the SEC, as we mentioned last October.

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For income starved investors, this could be potentially good news by offering another high yielding opportunity. However, as with any new bond fund, there is market risk involved, which means watching this ETF develop over a few months to better indentify price trends and volume is absolutely essential.

I will revisit the BONO ETF again later on this year.

Disclosure: No holdings

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