VanEck Australia has launched an actively managed emerging market bond ETF.
The VanEck Emerging Income Opportunities Active ETF (EBND) will pick emerging market debts and will target a yield of 5%.
EBND will be similar to an American mutual fund managed by VanEck’s team in New York, however, EBND will be Australia domiciled, so it will face no US withholding taxes.
The New York team has a lot of freedom in deciding what to buy. This freedom includes deciding which countries count as emerging markets, and whether the fund should buy bonds at all, the product disclosure statement indicates.
When choosing debts, VanEck’s team starts by looks at how cheaply countries and company’s debts are trading relative to their economic strength. For example, a country with a very strong economy but cheap debt would be attractive to the fund.
The strength of sovereign debt will be assessed based on metrics like GDP, total debt and government revenue. While corporate debt will be judged on how easily companies can make their interest payments, how much assets they have, and other metrics.
Debts that offer the best value will be added to the fund. The fund managers will watch out for any signs of deterioration in a country or companies ability to repay.
The fund can buy bonds denominated in local currencies as well as US dollars. When the fund buys US dollar debts, VanEck Australia will hedge back into Aussie dollars.
The fund charges a management fee 0.95%, broadly consistent with the fee charged by the US mutual fund.