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BlackRock launches Europe’s first euro-denominated EM bond ETF

BlackRock has launched a new fixed income ETF in Europe which is the continent’s first to provide targeted exposure to euro-denominated emerging market government debt. The fund is the first ETF in Europe providing exposure to emerging market government bonds denominated in euros.

Source: BlackRock launches Europe’s first euro-denominated EM bond ETF

While there are several emerging market sovereign bond ETFs in Europe, these funds invest in bonds issued either in US dollars or in local emerging market currencies.

By targeting bonds issued and denominated in euros, the fund exhibits a greater inclination towards emerging market issuers from Central, Eastern, and Southeastern Europe.

Maximum diversification

The fund is linked to the JP Morgan Euro EMBI Global Diversified Index which includes euro-denominated fixed-rate and fixed-rate bonds from government and quasi-sovereign issuers in emerging markets. Inflation-linked and convertible securities are not eligible for inclusion.

Only bonds with a remaining maturity of at least two and a half years and a minimum amount outstanding of €500 million are selected for the index, although current constituents will only be removed once they pass six months to expiry.

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Whole countries can be removed from the index universe if their Gross National Income per capita rises above JP Morgan’s Index Income Ceiling or if their long-term foreign currency sovereign credit rating is “A-“ or above for three consecutive years.

Constituents are weighted by market value while capping the weight of any country at 10% which, according to JP Morgan, gears the index toward managers who want maximum diversification or those who face limitations on the amount of portfolio exposure they can take to individual issuers.

As of 30 March, the largest country exposures were Romania (8.7%), Poland (7.2%), Lithuania (4.9%), Latvia (4.8%), Croatia (4.7%), Mexico (4.7%), Indonesia (4.6%), Bulgaria (4.4%), Chile (4.2%), and Hungary (3.7%).

The fund comes with an expense ratio of 0.35%. Income is distributed on a semi-annual basis.

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Tags:Emerging and FrontierETF and Index NewsETF Industry NewsETF LaunchFixed IncomeiSharesJP Morgan