What is an Emerging Market Bond Fund?

A. Leverkuhn

New investors who are turning toward emerging market bond fund options can choose the best opportunities through careful identification of market trends, a solid personal philosophy of investing, and a close inspection of the debts in foreign markets that make up these funds. Emerging market bond funds are a little different than some of the other financial products available through brokerages and financial services. Bond funds based on emerging markets are funds that seek to gain through successful repayment of debt involved in growing the economies of promising countries and regions of the world.

It's important to research default risks for investment bonds even though the emerging markets found in India and China typically take on debt in a safe way.
It's important to research default risks for investment bonds even though the emerging markets found in India and China typically take on debt in a safe way.

Investment reports on emerging market bond fund selections show a range of data that can help the new investor identify funds with the potential for big gains. These reports include information on the minimum contribution and annual costs, as well as one year, two year, five year, and ten year projected yields. Beginners can use this information to dial in choices on emerging market bond funds.

Investors should choose emerging market bond fund options that are best matched to their existing portfolios.
Investors should choose emerging market bond fund options that are best matched to their existing portfolios.

Each emerging market bond fund is also rated by various ratings agencies. Those who are interested in acquiring these funds can look at whether the funds are composed of “investment grade” bonds, or “junk” bonds which traditionally carried higher risk. Investors can also look at the way that fund managers diversify fund holdings to limit risk. They can look at specific ratings for a fund, where a AAA rating is the top classification for solid bond equities.

Overall, it’s important to look at how the bonds involved in emerging market bond funds are contributing to the growth of the economy involved. In any bond fund situation, investors will be assessing the actual debt to look for any chances of default or nonpayment. Many governments and municipalities in emerging markets like China and India take on debt in a relatively safe way, but it’s still worth researching the actual risks of default for any investment in bonds. Though emerging market bond funds tend to be more diversified overall, investors can still investigate how a particular fund's leadership hedges against risk to choose the best emerging market bond funds with the least chance of instability.

Investors also need to choose emerging market bond fund options that are best matched to their existing portfolios. Experts recommend diversifying into different sectors, different markets, and different products to build solid, limited-risk capital allocations. An emerging market bond fund can be a good play on emerging markets, but the optimal choices will match the “fund basket” of the investor, as well as his or her tax situation and long term goals, while looking at whether specific foreign companies or agencies are likely to be able to pay back debts.

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