EMB - EMD: Not Enough Foreign Currency Exposure For My Liking

2024-06-05 18:11:45 ET

Summary

• Western Asset Emerging Markets Debt Fund Inc offers a high yield of 10.75%, which is lower than many peers in the emerging markets debt sector.
• The fund has outperformed both the emerging markets bond index and domestic investment-grade bonds over the past six months.
• The fund's primary investment objective is to provide a high level of current income by investing in fixed-income securities issued by governments and corporations in emerging markets.
• The fund's assets consist mostly of U.S. dollar-denominated securities, but foreign currency bonds would be preferable for our thesis of long-term dollar decline.
• The fund covered its distribution in 2023, but it is now spotty. It does have a huge discount on net asset value, though.

The Western Asset Emerging Markets Debt Fund Inc ( EMD ) is a closed-end fund, or CEF, that invests its assets in emerging market securities to earn a high level of current income for its investors. The fund manages to achieve a very high yield from this strategy, as its current 10.75% yield is substantially higher than the 4.82% trailing twelve-month yield of the iShares J.P. Morgan USD Emerging Markets Bond ETF ( EMB ). Then again, it is not at all unusual for a closed-end bond fund to boast a higher yield than comparable index funds. Due to the use of leverage, pretty much all bond funds manage to achieve this task. We can see this by looking at the yields of other closed-end funds that invest in emerging markets debt securities:

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