I like where WisdomTree is headed….

By: ispeculatornew
Date posted: 10.22.2010 (4:10 am) | Write a Comment  (2 Comments)

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I have long been a fan of fixed income ETF’s because they can help in big ways to be more efficient in that portion of passive income portfolios. Some time ago, I wrote about WisdomTree’s first fixed income ETF, ELD, which is gives exposure to Emerging Markets local debt. I have complained about the fact that you have tens of ETF’s dedicated to Treasuries and hardly any international fixed income ETF’s. ELD was a step in the right direction.

It seems like they are getting ready for the next step; giving exposure to individual debt markets. First off, Wisdom Tree has filed to create a Brazil Bond ETF. This opens many new opportunities and is hopefully the start of something much bigger. In equity ETF’s, we can easily trade individual country ETF’s but that diversity was lacking for fixed income.

Many governments issue bonds at much greater yields than you could get in the US, even for a similar level of risk. The best way to compare it is to find similar yielding corporate bonds. We had written about Microsoft’s (MSFT) insanely low yields on its corporate bonds. Why not get a bond on a country like China or Brazil instead of looking for a few extra yields points in a US corporation? It’s at least worth it to include in your portfolio.

So what is so great about Brazil bonds?

First off, they currently yield around 11.3% and they offer additional exposure to the Brazilian Real (currency), the interest rate and inflation situations in Brazil and also make it possible to make more sophisticated investments in Brazil without all of the complications. That explains why foreign investors have tripled their investments in Brazil bonds in the past 3 years to $89 billion. Of course, that is almost all done by institutional investors because of the costs and complications involved. Hopefully that will come to an end soon…!

One thing that is not clear is how taxes will work for this ETF as the Brazilian government is planning on taxing foreign investments

How would I use this ETF?

I must say that in a retirement passive portfolio, I would probably be more inclined to hold a diversified ETF such as ELD. That being said, a more speculative or aggressive portfolio would maybe be a perfect place to hold this upcoming ETF.

When will it start trading?

No clue as of now, as the ETF is still looking to get regulatory approval.

Who is next?

Personally, I am hoping to see bonds on Canada, China & Russia among the next ones. They all provide something unique and would give much more yield than US treasury ETF’s with limited additional risk.

Corporate bonds

Of course, the following step would be giving the possibility to invest in foreign corporate bond markets… It’s probably more difficult because these markets are not as liquid and are much much smaller than what you can find in the US corporate bond market. But there will be interest, I have no doubts about it.

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2 Comments

  1. Comment by IS — October 22, 2010 @ 4:13 am

    Just an update, I found out yesterday that WisdomTree has also filed for these 3 ETF’s:

    WisdomTree Asia Bond Fund
    WisdomTree Latin American Bond Fund
    WisdomTree EMEA Bond Fund (Europe, Middle East & Africa)

  2. […] approach, less turnover and thus you know exactly what you are buying. I have supported some non-index tracking ETF’s such as ELD but in general I’m a fan of index based ETF’s. -Tracking error : When an ETF tracks an […]

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