Emerging Markets Fixed to Generate Income

05/26/2016 10:00 am EST

Focus: ETFs

Mark Salzinger

Editor and Publisher, The No-Load Fund Investor

Our latest featured fixed income idea aims to generate strong total return from emerging markets bonds, explains Mark Salzinger, editor of The Invsetor’s ETF Report.

SPDR Double Line Emerging Markets Fixed Income (EMTL) believes emerging markets credit is poised to improve in quality over the long-term, pointing out that the percentage of emerging markets bonds rated investment grade has increased from 25% in 2001 to 64% in 2015.

They diversify holdings by region, country and sector to help limit risk, while their fundamental research looks to avoid securities with poor or deteriorating credit as much as it looks to identify improving ones.

EMTL can invest in both sovereign (i.e., government) and corporate bonds. For sovereigns, DoubleLine favors issuers who have demonstrated commitments to economic reform, improving economic fundamentals, stable political structures and diversified economies.

For corporate issuers, DoubleLine prefers companies in so-called “strategic” economic sectors, like natural resources, banking, utilities and telecommunications, which have dominant market shares and are backed by significant equity capital that is held by stable shareholders, such as institutional investors.

EMTL has specific limits on its various portfolio exposures. No single economic sector or country can account for more than 20% of assets. No more than 20% can be in bonds rated below investment grade or denominated in local currency.

EMTL should have only a moderate sensitivity to changes in interest rates, with its duration aimed between two and eight years. EMTL has a 0.55% expense ratio.

It is worth pointing out that Doubleline’s mutual funds have strong long-term records, and family founder Jeff Gundlach is one of the world’s foremost fixed-income portfolio managers.

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By Mark Salzinger, Editor of The Invsetor’s ETF Report

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