Robert Schmieder, a senior corporate analyst at VanEck, highlighted how the JP Morgan Corporate Emerging Markets Bond Index beat the portfolio of US corporate bonds in eight out of 13 years between 2004 and 2016, and added returns from EM securities was higher over the same period.
Returns from the emerging economy securities were 10% higher than returns from US corporate bonds between 2004 and 2016, he added.
Corporate bonds in emerging economies, denominated in US dollars, should be a “strategic component” to help diversify a bond portfolio as they offer higher earnings potential than similar bonds in the US and Europe.
They offer superior returns with less historic risk of defaulting and lower levels of corporate debt, according to research conducted by the US-based firm.
Schmieder said: “Corporate bonds denominated in dollars should therefore be a strategic component of any bond portfolio.
“Within the increasingly mature and growing bond markets of emerging markets, the corporate bond sector offers investors additional diversification options and in many cases great investment opportunities with a higher earnings potential.”
Yields are also greater in EM corporate bonds with the yield-to-worst (YTW) ratio, which traces the lowest potential yield investors can receive without the issuer defaulting, significantly higher for EM corporate bonds.
In February 2017, the ratio for EM corporate bonds was 4.4% against the score of 3.28% for US issuers.
