EMLC ETF

Domestic bond yields shot higher Wednesday following Election Day. That could give some fixed income investors pause about riskier corners of the global bond market.

Broadly speaking, exchange traded funds focusing on dollar-denominated and local currency emerging markets debt are performing admirably this year. With the Federal Reserve poised to soon lower rates, more of the same could be in store.

Conventional fixed income wisdom holds that high interest rates in the U.S. are problematic for emerging market debt and related ETFs. That scenario has played out this year, particularly for emerging market bonds denominated in local currencies.

Emerging market bonds, including those in dollars and local currencies, have decreased in line with overall domestic debt this year. Despite this, certain areas within the developing fixed income market are displaying resilience.

Dollar-denominated emerging markets are outpacing broader measures of U.S. bonds, including the Bloomberg U.S. Aggregate Bond Index, on a year-to-date basis, but local currency haven't joined the party as of yet. Some market observers believe that scenario is poised to change.

Over the past several years, emerging market debt denominated in local currencies has been a resilient corner of the bond market. Over that span, the VanEck J.P.

In 2023, the US dollar has remained strong despite weak fundamentals compared to emerging markets and developed countries. The US Dollar appears likely to reverse in 2024 as real interest rates reverse. Higher commodity prices may significantly accelerate that shift in favor of emerging markets. Most emerging market countries in EMLC have superior fiscal responsibility and trade balances compared to the US and Europe.

Domestic aggregate bond strategies are on pace for decent showings this year. And there is mounting speculation that the Federal Reserve will lower interest rates next year, perhaps multiple times.

VanEck J.P. Morgan EM Local Currency Bond ETF is a difficult buy due to the poor performance of emerging market bonds. The EMLC ETF provides exposure to a diversified portfolio of local currency bonds issued by sovereign entities in emerging markets. The fund has a focus on comparatively robust emerging markets and offers potential benefits of diversification and higher yields, but also comes with higher risk.