What Are the JP Morgan EMBI, EMBI+ and EMBIG Indexes?

3 Important Emerging Market Bond Indexes to Know

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Equity and bond indexes are a common way to create exchange-traded funds ('ETFs") and indexed mutual funds, as well as benchmark the performance of portfolios. These indexes are commonly broken down into different categories based on their target markets, such as European indexes, small-cap indexes, or emerging market indexes.

The J.P. Morgan EMBI (Emerging Market Bond Index), EMBI+ (Emerging Market Bonds Index Plus) and EMBIG (Emerging Market Bond Index Global) indexes are designed to help individual and institutional investors benchmark bond performance in emerging markets around the world, with each index covering different types of emerging market economies.

In this article, we’ll take a look at the differences between these three indexes and how individual and institutional investors can use them to benchmark performance.

Emerging Market Bonds

J.P. Morgan’s initial EMBI was launched in 1992 covering so-called Brady bonds, which are dollar-denominated bonds issued primarily by Latin American countries, but was later expanded to also include dollar-denominated loans and Eurobonds. The EMBI+ was subsequently introduced to also track total returns for external debt instruments in emerging markets around the world.

The EMBIG was the final emerging market bond index introduced as an expanded version of the EMBI+, covering more eligible instruments than the EMBI+ by using less strict limits on secondary market trading liquidity. As a result, most large emerging market bond funds now use the EMBIG index as their benchmark when comparing their performance relative to the market.

Emerging Market Benchmarks

Most investors use benchmarks when comparing actively managed or passively selective exchange-traded funds (“ETFs”) or mutual funds with their index peers. For example, an investor considering an emerging markets bond ETF may compare its performance to the EMBIG or other J.P.

Morgan indexes in order to determine how closely the ETF matches the performance of the indexes.

Some popular emerging market bond ETFs include:

  • iShares JP Morgan Emerging Market Bond Fund (EMB)
  • PowerShares Emerging Market Sovereign Debt Fund (PCY)
  • MarketVectors Emerging Markets Local Currency Bond Fund (EMLC)
  • WisdomTree Emerging Markets Local Debt Fund (ELD)

The largest emerging markets bond ETF, the iShares JP Morgan Emerging Market Bond Fund (EMB), uses the J.P. Morgan EMBI Global Core Index as its benchmark, which means that the fund’s managers try to replicate the performance of that index as closely as possible. Meanwhile, the PowerShares Emerging Market Sovereign Debt Fund (PCY) tracks its performance relative to the EMBI Global Core Index, too.

Alternatives Indexes

Investors have many different options when selecting emerging market bond indexes. While the J.P. Morgan EMBI, EMBI+, and EMBIG indexes may be the most popular, others can offer different characteristics that may be attractive to investors in various situations. For example, some indexes may be customized in order to enhance performance relative to the aforementioned J.P. Morgan benchmarks.

Some other popular indexes include:

  • DB Emerging Market USD Liquid Balanced Index
  • Bloomberg USD Emerging Market Sovereign Bond Index
  • Barclays USD Emerging Market GovRIC Cap Index

Different ETFs and mutual funds utilize different benchmark indexes in order to set themselves apart from the competition and potentially enhance risk-adjusted returns. The key for investors is determining whether or not the benchmark index contains all of the components that they’d like to gain exposure to, as well as determine if the level of risk is acceptable for their portfolios.

Takeaway Points

  • Equity and bond indexes are commonly used as a basis for indexed funds - including ETFs and mutual funds - as well as benchmarks for portfolio performance.
  • The J.P. Morgan EMBI, EMBI+ and EMBIG indexes are designed to help investors benchmark their performance relative to the market.
  • Many ETFs and mutual funds also use the indexes as benchmarks and attempt to mimic their performance over time as closely as possible.
  • There are several alternative emerging market bond indexes available from providers including Deutsche Bank, Bloomberg, and Barclays, among others.