iShares J.P. Morgan EM High Yield Bond ETF (EMHY) seeks to track the J.P. Morgan EMBI Global High Yield Index, which measures the performance of high-yield, U.S. dollar-denominated sovereign and quasi-sovereign bonds issued by emerging market countries with below-investment-grade credit ratings.
How It Works
EMHY uses a passively managed, market-value-weighted approach that holds bonds in proportion to their outstanding amounts in the index. The fund focuses on emerging market government and government-related bonds denominated in U.S. dollars with credit ratings below BBB-/Baa3. Portfolio duration typically ranges from 5-8 years, with monthly rebalancing to maintain index alignment. Holdings concentrate in Latin American, Eastern European, and Asian sovereign debt issuers.
Key Features
- Targets high-yield emerging market sovereign debt with 5.52% dividend yield, significantly higher than investment-grade bond ETFs
- Provides U.S. dollar-denominated exposure, eliminating direct currency risk while maintaining emerging market credit exposure
- Focuses exclusively on government and quasi-government issuers, avoiding corporate credit risk within emerging markets
Risks
- This ETF can lose significant value if emerging market governments default or face debt crises, with potential losses of 20-40% during sovereign debt crises
- Rising U.S. interest rates cause bond prices to fall, with 5-8 year duration meaning 5-8% decline per 1% rate increase
- Emerging market economic instability, political upheaval, or capital flight can trigger sharp selloffs even without actual defaults occurring
Who Should Own This
Best suited for income-focused investors with high risk tolerance seeking enhanced yield over 3-5 year periods. Should represent 5-15% of fixed income allocation as satellite holding. Requires comfort with emerging market volatility and potential principal losses in exchange for higher current income than developed market bonds.