Venezuelan President Hugo Chavez is in Cuba Tuesday receiving treatment for the return of his cancer. Chavez made the announcement on Saturday, noting that Vice President Nicholas Maduro would finish the Chavez term if the controversial president were to become incapacitated. Chavez also implored Venezuelans to reelect Maduro should he become president.
Predictably, news of Chavez's cancer bout has touched off speculation about what comes next for the South American nation. Some traders and portfolio managers are hoping for a more business friendly regime in Venezuela, as Barron's notes. That is understandable as Chavez has nationalized or seized the assets of foreign firms operating in his country 1,000 times since taking office.
Interestingly, news of Chavez's ill health is having a muted impacted on the few ETFs that offer exposure to the OPEC nation. Despite the fact that Venezuelan equities are among the world's best performers this year, there are no ETFs that offer any noteworthy exposure to the country's stocks.
Investors willing to take the risk on Chavez and his anti-free market ways must do so through the bond market and there are a few ETFs with which to do that.
The iShares Emerging Markets High Yield Bond Fund (EMHY) offers the largest exposure to Venezuela of any ETF traded in the U.S. In fact, Venezuela accounts for almost 15.4 percent of EMHY's weight, making it the largest country weight in the newly minted ETF.
EMHY is trading fractionally lower today, but its volume to this point in the trading day is barely more than 10 percent of the daily average. EMHY debuted in April as one of the first ETFs offering exposure to high-yield corporate and sovereign debt issued by developing nations. Quietly, the fund has been one of the most impressive new ETFs to come to market this year, garnering almost $181 million in assets under management.
With a weighted average maturity of 8.66 years, EMHY has a 30-day SEC yield of 5.55 percent. Turkey accounts for 15.3 percent of EMHY's weight while the Philippines is the third-largest country weight at almost 10.5 percent.
The Market Vectors Emerging Markets High Yield Bond ETF (HYEM), which focuses on corporate junk bonds from emerging markets issuers, is trading higher by 0.4 percent on volume that is nearly quadruple the daily average. HYEM, which debuted in May and now has $21.2 million in AUM, allocates 8.73 percent of its weight to Venezuela. That makes the country the ETF's third-largest country weight behind China and Russia. Most of the Venezuelan issues in HYEM are from Petroleos Venezuela, the country's state-run oil producer.
The Market Vectors LatAm Aggregate Bond ETF (BONO) is trading lower by 0.3 percent on volume that is more than triple the daily average. Over two-thirds of BONO's holdings are rated investment grade, but Venezuela is the ETF's fourth-largest country weight at 9.53 percent. Brazil and Mexico combine for over 59 percent of BONO's weight.
Despite the dominance of Brazil and Mexico in BONO, two Venezuelan issues, one from the oil company and a sovereign issue, are found in BONO's top-10 holdings.
Should regime change make its way to Venezuela in the near-term, investors will want to keep an eye on the aforementioned ETFs and not just because of the robust yields. When Chavez won reelection in early October, Venezuelan sovereign debt fell by the most in four years. Perhaps the reverse will happen if the bond market begins pricing in a more business-friendly regime in Venezuela.
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