ETF Showdown: Global Bond Battle

If for some reason you've been living in a cave, you might not know that one of the hottest growth areas of the ETF universe is international bond funds. Investors have had access to international bond funds before, but the number is rising and with that comes some more unique options beyond accessing German bunds or British gilts. Why not try some emerging markets debt on for size? More specifically, let's try those bonds that are NOT denominated in dollars, but rather in the local currency. That ought to make for an interesting ETF Showdown between the newly minted iShares Emerging Markets Local Currency Bond Fund LEMB and the more well established WisdomTree Emerging Markets Local Debt Fund ELD. As we just said, the iShares offering is new. It made its debut on October 18 and has garnered $30.3 million in assets under management in that time. ELD isn't that old (it debuted in August 2010), but this ETF clearly has a first-to-market advantage as it has over $1.1 billion in AUM. At the country level, these are the nations ELD will give you exposure to: Brazil, Chile, Colombia, Mexico, Peru, Poland, Turkey, South Africa, Russia, Malaysia, Indonesia, Philippines, Thailand, China, and South Korea. LEMB basically features the same lineup along with exposure to Czech Republic, Hungary and Israel. There are more important differences. ELD is actively managed, but has an expense ratio of 0.55% and that beats LEMB's 0.6% expense ratio. LEMB may offer exposure to more countries, but ELD has more holdings. In fact, ELD has nearly twice as many holdings as the 44 issues that LEMB home. ELD is also more diverse at the country level as Brazil, Indonesia, Malaysia and Mexico combine for almost 42% of the ETF's country allocation. On the other hand, South Korea and Brazil account for over 34% of LEMB's weight. ELD has an average yield to maturity of 5.39%, a weighted average coupon of 6.91% and an effective duration of 4.51%. Those stats for LEMB are as follows: 6.06%, 6.28% and 3.99%. Overall, LEMB is a fine ETF and its AUM haul is stunning in such a short period of time, but our preference is the more established ELD on the basis of better country allocation and lower fees. Bull case: Investors keep looking for bonds that are not Treasuries or denominated in U.S. dollars. That would help both ETFs mentioned here. Bear case: Emerging markets everything, stocks, bonds, etc., implode if the European crisis grows.