BlackRock is doubling down on the debt of emerging economies. On Oct 13, the giant asset manager rolled out the iShares Emerging Markets Bond Active ETF (NASDAQ:BREM), offering investors a new avenue to access emerging-market fixed income with an active strategy offering flexibility over the traditional index-based methodology.
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BREM aims to achieve maximum total return through a combination of income and capital appreciation, investing mainly in hard-currency bonds, i.e., those denominated in U.S. dollars, euros or sterling pounds, issued by sovereigns and corporate entities with a connection to emerging markets.
A Flexible Approach To EM Debt
In contrast to a passive index ETF, managers at BlackRock Fund Advisors (BFA) for BREM can make adjustments to the portfolio in real time, reallocating based on macroeconomic trends or issuer-specific opportunities. The fund tracks the J.P. Morgan EMBI Global Diversified Index for measuring market risk, but does not attempt to replicate it.
The ETF’s portfolio will include sovereign, public-sector, and corporate debt, such as mortgage- and asset-backed securities, with varying durations and maturities. A minimum of 80% of net assets (plus borrowings, if any) will be invested in emerging market issuers or entities with significant economic relationships to those markets.
Tools Of The Trade
BREM can use derivatives such as futures, swaps, and credit default swaps for hedging or tactical positioning while keeping a high-yield tolerance of up to 10% in CCC-rated or unrated securities. Such flexibility enables the team to go long in opportunities when valuations move or spreads blow out.
The expense ratio is 0.50%, with BlackRock waiving certain affiliated fund fees until June 2027.
Mind The Risks
Needless to say, pursuing yield in emerging markets also has its conditions. BREM’s performance may be buffeted by changes in interest rates, currency fluctuations, or political instability in major regions. The non-diversified nature of the fund may also increase exposure to a single country or issuer.
Nevertheless, for those investors seeking to capture income opportunities from developing economies, but not locked to a benchmark, BREM provides a flexible, actively managed means into a challenging but potentially lucrative part of global debt markets.
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