PowerShares Emerging Mkts Sovereign DebtPCY

Morningstar Rating

ETF Research and Analysis

by Timothy Strauts

Suitability
PowerShares Emerging Markets Sovereign Debt PCY is suitable for use as a satellite holding within a diversified fixed-income allocation. The emerging-markets debt space has become increasingly popular in recent years. Read more

Bull Case

This fund provides convenient, low-cost exposure to a basket of emerging-markets government bonds.

Improving credit quality and greater liquidity have helped raise the investment profile of emerging-markets debt in the current low interest-rate environment.

With relatively low correlations to other major asset classes, emerging-markets debt offers valuable diversification benefits. Read more

Bear Case

A surge in demand has driven prices higher and lowered yields. Investors should make sure they are being adequately compensated for assuming the risks associated with emerging-markets investments.

If interest rates rise in the future, the ETF's above-average duration will likely cause negative fund returns.

While credit quality has been improving over the past several years, emerging markets still court unique risks related to lower transparency, weaker governance, and less liquidity. Read more