Exchange traded funds do not celebrate birthdays with cake, presents or a party at Chuck E. Cheese, but making it to the five-year mark is significant. Making it that far as a successful ETF is even more impressive, particularly when considering the number of ETF closures will set a record this year.
So it is noteworthy that the PowerShares Emerging Markets Sovereign Debt Portfolio (NYSE:PCY), the first ETF to offer investors dollar-denominated exposure to the sovereign debt of developing nations, turned five today. Even more noteworthy is the fact that the ETF did so with over $2.7 billion in assets under management.
These days, PCY does battle with the larger iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSE:EMB) in what is one of the more compelling ETF rivalries out there. Both ETFs now find themselves competing with a growing number of non-dollar denominated emerging markets debt ETFs, many of which have proven popular with investors.
Still, EMB and PCY have dominant market positions because the funds offer investors the allure of emerging markets bonds with the comfort and safety of the U.S. dollar. Of course, yield is part of the equation. PCY has a trailing 12-month yield of almost 4.7 percent and a 30-day SEC yield of 4.2 percent. To boot, the ETF pays a monthly dividend, which increases the allure of this fund to income investors.
PCY's 64 holdings have an average years to maturity of almost 15.4 and an effective duration of 9.5 years. For those that merely care about pure performance, PCY is celebrating its fifth year of existence in style with a year-to-date gain of 13.8 percent that has the fund trading at all-time highs. Since inception, PCY has gained 19.7 percent.
PCY hold issues from up to 22 countries at any given time and current constituent nations include Turkey, Hungary, Lithuania, Colombia, Brazil and Mexico. For what it is worth, some noteworthy investors are bullish on Brazilian and Mexican debt. Additionally, Colombia's credit rating could see further increases over the next year.
Reverting back to performance, PCY has some interesting feathers in its cap. Acknowledging that these are not apples-to-apples to comparison, the roster of major bond ETFs that PCY has delivered more alpha than in the past year is impressive. That lineup includes the following: The Vanguard Total Bond Market ETF (NYSE:BND), the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE:LQD) and the SPDR Barclays Capital High Yield Bond ETF (NYSE:JNK).
In the past six months, PCY is up 11 percent compared to a gain of 6.4 percent for the PIMCO Total Return Bond ETF (NYSE:BOND). Again, PCY is obviously different than funds such as BND or JNK, but it has also distinguished itself in terms of performance. With a low correlation to U.S. equities and something to offer both aggressive and conservative investors, PCY's status as one of the premier ETFs focusing on non-U.S. bonds should be good for at least another five years.
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