Morningstar Magazine - August/September 2017 - 53
bid-ask spreads, are approximately four times
higher than those for U.S. Treasury bonds
according to the International Monetary
Fund. During times of market stress, it will likely
cost even more to transact. Emerging
markets generally have fewer market participants
and less-developed trading infrastructure
than developed markets, leading to higher
transaction costs.
Although the fund has lagged its index, it has
managed to best its peers. Its trailing threeand five-year returns through March were 5.51%
and 4.93%, respectively, outpacing 80% of
its peers. During the same period, its risk-adjusted
returns came out ahead of its typical category peer
as well. This outperformance stems mainly from
the fund's cost advantage. The fact that the
fund was underweight in bonds from Mexico and
the Philippines from 2014 to 2015 relative to its
category peers also helped performance.
Portfolio Construction
The fund earns a Positive Process rating because
its underlying index accurately represents, at lower
cost, how its active peers are positioned in
a category where most are clustered around the
mean. It weights its holdings by market cap
and employs country caps to improve
diversification. This approach helps keep turnover
low, which is important because emerging-markets
debt can be expensive to trade.
measures the performance of U.S.-dollardenominated emerging-markets debts issued
by sovereign and quasi-sovereign entities
with at least two and a half years until maturity.
A country is defined as an emerging market
if it has had a low or middle per capita income for
at least two consecutive years as defined
by the World Bank. Also, any country that has
restructured its external debt in the last
10 years or currently has restructured external debt
outstanding is considered an emerging market.
Qualifying issues must have a minimum
outstanding face value of $1 billion with daily bid
and offer prices available from a third-party
vendor. Convertible and corporate bonds not
backed by a government are not eligible. Bonds
in this index are weighted by market cap, but
the single-country aggregate exposure is capped
at $14.75 billion irrespective of its percentage
weighting. The index rebalances on the last
business day of each month. In the most recent
fiscal year, the fund turned over about 32% of its
assets, while the corresponding figure for the
average fund in the category was 341%.
Fees
The fund uses representative sampling to track the
JPMorgan EMBI Global Core Index, which
The fund charges an expense ratio of 0.4%,
which is among the lowest in the emergingmarkets bond category, supporting a Positive Price
Pillar rating. In fact, its fee is lower than 94%
of its category peers and much lower than
the 0.84% category average fee. From its December
2007 launch to March 2017, the fund lagged
its benchmark by 80 basis points-more than the
amount of its fee. This is partially attributable
Credit Quality 06/30/2017
Fixed-Income Asset Allocation 06/30/2017
Fund
Cat
Bonds
AAA AA
A
BBB BB
B
http://global.morningstar.com/Morningstarmagazine
Table of Contents for the Digital Edition of Morningstar Magazine - August/September 2017
Contents
Morningstar Magazine - August/September 2017 - Cover1
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Morningstar Magazine - August/September 2017 - 1
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Morningstar Magazine - August/September 2017 - Contents
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