Want Some Yield With Your Government Bonds? Try This ETF

Ten-year Treasury yields slid 3.5 percent yesterday to a close of 1.8 percent, bringing the year-to-date decline for yields on benchmark U.S. government debt to a staggering 20.7 percent. For those that think yields on Treasurys are piddly, they are correct, but significantly lower yields can be found on government bonds in other developed markets.

Years of quantitative easing and implementation of negative interest rates have made it difficult for investors to find decent yields on developed markets' sovereign debt. Fortunately, the weaker dollar has made emerging markets bonds more attractive. Yield-starved investors can play that theme while capturing yield with the Cambria Sovereign High Yield Bond ETF SOVB.

SOVB, which debuted in February, is an actively managed fund and not a dedicated emerging markets play as highlighted by the ETF's combined weight of 9.6 percent to New Zealand and Australia at the end of the first quarter.

“SOVB launched just this past February and currently has about $4 million in assets under management, which is reasonably expected at this point in the fund’s life cycle,” said Street One Financial Vice President Paul Weisbruch in a note out Tuesday. “While the High Yield Bond category in U.S. listed ETFs is robust in terms of investor interest and invested assets, there is certainly opportunity in the 'Global' niche within High Yield Bond investing as the lion’s share of assets are currently in U.S. focused HY strategies.” 

SOVB “applies the Cambria's core principles of value investing to fixed income by buying and holding attractively priced foreign government bonds with high yield characteristics. While traditional bond funds are often concentrated in the largest debtors, SOVB holds a well-diversified portfolio of liquid sovereign debt,” according to California-based Cambria. 

With emerging markets bonds on the mend, SOVB could prove to be a well-timed launch as investors revisit the asset class in search of yield. Emerging markets governments and some corporations binge borrowed in dollars during the various versions of the Fed's quantitative easing programs. It looked smart as the dollar weakened against a plethora of developed and emerging currencies, but those emerging markets borrowers were caught off guard when the dollar started soaring several years ago.

Translation: A faltering dollar makes emerging market debt more appealing.

Although it is fair to say SOVB is a middle maturity ETF with 62 percent of the ETF's holdings having maturities that do not exceed 10 years, 28 percent have maturities of 10 to 20 years, indicating lower for longer U.S. interest rates should help this fund.

SOVB's 30-day SEC yield is just over four percent and the ETF charges 0.59 percent per year.