Emerging Market Bond Flows – ETF AUM Surge

Emerging market bonds have come under pressure along with the rest of the bond market as a sort of Taper 2.0 has hit the market [ECB moving toward taper, BoJ already effectively doing a stealth taper, and the Fed even looking to normalize its balance sheet].  We’ve talked about ECB/BOJ taper prospects for some time, and noted that the best days of QE (Quantitative Easing) are certainly behind us – at least for this cycle.  That means bad news for asset classes that have benefited from QE spillovers and yield chasing.  Emerging market bonds are one of those.

Three Business Books To Start Your Summer

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

The first chart in this ChartBrief shows EM ETF assets and really if you look at the chart you don't really need to add many words.  Clearly there has been a boom in EM bond allocations in the ETF space.  Some of this surely represents longer term strategic asset allocations or shifts from active to passive management, but if you checkout the next chart you can see there is an ebb and flow in the flows, and arguably our flow indicator is pointing to downside risk.  That all said if you look at the distribution yield for a USD EM bond ETF it's around 4.5% (with an average underlying yield of about 5.2%) vs an equivalent US treasuries ETF of around 1.8% (avg yield 2.3%), so there is still a substantial yield pickup.  Of course, if price drops then yield will look even better!

Voss Capital is betting on a housing market boom

Housing MarketThe Voss Value Fund was up 4.09% net for the second quarter, while the Voss Value Offshore Fund was up 3.93%. The Russell 2000 returned 25.42%, the Russell 2000 Value returned 18.24%, and the S&P 500 gained 20.54%. In July, the funds did much better with a return of 15.25% for the Voss Value Fund Read More


The major EM bond ETFs have seen a substantial rise in assets under management over the past 2 years.

Taking a rolling quarterly (price adjusted) flows view (standardized against AUM), the ETF fund flow indicator shows a recent surge, which looks to represent an extreme - and likely contrarian - sentiment signal.  Thus it's fair to say on that indicator alone that downside risks are elevated.

Emerging Market Bond Flows

For more and deeper insights on the global markets, good charts, and actionable investment ideas you may want to subscribe to the Weekly Macro Themes - our institutional service.  Click through for a FREE TRIAL.

Follow us on:

LinkedIn https://www.linkedin.com/company/topdown-charts

Twitter http://www.twitter.com/topdowncharts

Article by Callum Thomas, Top Down Charts

Save