ETF NEWS - ULTUMUS

Duration and Debt

Written by Bernie Thurston | 1 July 2022

Duration and debt levels managed EM bond ETF 

 

BondBloxx, an ETF newcomer that focusses on fixed income ETFs, has launched an emerging markets bond ETF that manages risk.  

 

The BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD) tracks the JP Morgan EMBI Global Diversified Liquid 1-10 Year Maturity Index.  

 

 

The fund invests broadly US dollar denominated bonds from emerging market sovereigns with their principal falling due within 10 years. While there are plenty of EM debt ETFs – there’s over $25 billion in EM bond ETFs in the US – this fund distinguishes itself by limiting the weights of countries with higher debt levels and managing maturity.  

 

The fund charges 0.29%. 

 

Bernie’s commentary – proofread your prospectuses 

Emerging market bond ETFs are a big niche. Before the interest rate crunch stated this year there was almost $40 billion in them. Investors are attracted to their higher yields and diversification. This one aims to be slightly different by managing duration (a proxy for interest rate risk) and overall sovereign debt levels (a proxy for credit risk) to make a product that’s less risky. Given the ultra-low fee, and the timing, I think there’s a possibility that it's been brought out on client request.  

 

If I had a gripe, it’s the glaring error in the prospectus. Prospectuses are usually template documents that no-one bothers reading. Given that they receive a final sign off by Wall St lawyers earning $1000+ an hour, investors just trust there will be no obvious errors in them. A mistake, to be sure: there are errors in them all the time. I found this one on pages 1 – 2: 

 

“The Index was comprised of 52 countries as of May 31, 2022. As of May 31, 2022, the Index’s five highest weighted countries were Turkey, Saudi Arabia, Oman, China and Mexico. The Underlying Index was comprised of 69 countries as of May 31, 2022. As of May 31, 2022, the Underlying Index’s five highest weighted countries were Mexico, Indonesia, China, United Arab Emirates and Saudi Arabia.” 

In other words, clearly contradictory descriptions of the index’s top countries in back-to-back sentences--and on the first page! Something probably went wrong with Microsoft’s track changes function—one of those sentences was meant to be deleted. Hopefully Bondbloxx will be having a quick conversation with their lawyers as this looks to be a interesting product at the right time.