It was only a matter of time before an asset manager like New York-based Van Eck Global launched a local currency debt fund; thankfully for investors seeking such exposure they now have a relatively low cost (0.49% net expenses ratio) vehicle to do it with (NYSEArca: EMLC; Market Vectors Emerging Markets Local Currency Bond ETF) before certain developing market currencies really start to appreciate against debt-ridden, developed ones.  Per the FT:

“Most emerging market governments issue debt in both ‘hard currencies’ like the US dollar and euro and in their own local currencies,” notes Kevin Gardiner, head of global investment strategy at Barclays Wealth.  “Generally, the local currency debt trades with a higher yield to compensate investors for the additional foreign exchange risk they are incurring by holding the bonds.”  But Mr Gardiner said that as many emerging market economies and fiscal positions were in much better shape than their counterparts in the developed world, this is currently a risk he was happy to take.  “Local currency bonds in Asia, in particular, seem to us likely to outperform in all but the very worst investment environment,” said Mr Gardiner.

Van Eck reports that EMCL will focus on issues with an average years to maturity of 6.6, while only 21.6% of the fund is currently allocated to bonds that mature more than 10 years from now.  The relatively low duration thus means less price sensitivity to interest rate movements.  As to individual country exposure, Brazil, Malaysia, Mexico, Poland, South Africa, and Thailand are each weighted at 10% of the fund’s total assets, the maximum any one sovereign can hold under the fund.  Finally, all of the countries in the fund are rated investment grade by S&P with four countries achieving ‘A’ status or better and only two countries, Hungary and Egypt, hitting the lower rung of the investment grade spectrum at BBB-.  The underlying benchmark for the Van Eck ETF is the JPMorgan Government Bond Index – Emerging Markets Global Core Index, which has 171 constituents and is yielding roughly 6.8 percent.