The Attractiveness of Monthly Income from Emerging Markets Debt

In the search for income-generating assets in a low-yield environment, emerging markets debt has emerged as a compelling alternative. The Goldman Sachs Access Emerging Markets USD Bond ETF (GEMD) stands out as a strategic vehicle for investors seeking monthly income, combining high-yield exposure with the macroeconomic tailwinds of a weakening U.S. dollar and improving credit fundamentals in emerging markets.

A High-Yield Powerhouse with Competitive Costs

GEMD’s appeal begins with its yield profile. As of September 2, 2025, the ETF offers a current yield of 6.41% [2], outpacing the 6.83% average for the high-yield bond category [1]. This yield is supported by a 0.3% total expense ratio [1], making it one of the most cost-efficient options in its class. For context, the iShares High Yield Bond Factor ETF (HYDB), a benchmark for U.S. high-yield strategies, charges 0.35% [1] while delivering a trailing yield of 7.0% [1]. While HYDB’s yield is slightly higher, GEMD’s focus on USD-denominated emerging market bonds provides diversification benefits and exposure to faster-growing economies.

Strategic Advantages of EM Debt

The strategic case for GEMD is rooted in broader macroeconomic trends. Emerging markets are projected to grow real GDP by 3.7% in 2025, far outpacing the 1.4% growth forecast for developed economies [2]. This growth, coupled with a weakening U.S. dollar, has driven strong performance in EM debt. Year-to-date, EM local currency sovereign debt has returned nearly 13%, while hard currency sovereign debt has outperformed U.S. Treasuries by 2% [1]. The DXY index, a measure of the dollar’s strength, has fallen significantly in 2025, acting as a tailwind for EM debt holders [1].

GEMD’s structure further enhances its strategic value. The ETF invests at least 80% in securities from a rules-based index of emerging market USD bonds, prioritizing liquidity, governance, and fundamental screening [2]. Its semi-transparent active management model—revealing full portfolio holdings monthly or quarterly—offers investors clarity without the full transparency risks of traditional ETFs [3]. This balance of structure and flexibility is critical in volatile markets, where liquidity and governance can mitigate downside risks.

Risk Mitigation and Income Consistency

While EM debt carries inherent risks, GEMD’s focus on investment-grade and high-yield bonds issued by governments or quasi-government entities reduces exposure to corporate defaults. The fund’s 12-month dividend yield of 6.41% [2] is bolstered by consistent monthly payouts, a rarity in the fixed-income space. By contrast, HYDB’s monthly payouts average $0.279 [1], but its U.S.-centric focus leaves it vulnerable to rate hikes and inflationary pressures.

However, investors must remain cautious. Geopolitical tensions, such as conflicts in the Middle East and between Russia and Ukraine, could disrupt EM markets [1]. Additionally, while EM debt has outperformed in 2025, its volatility remains higher than U.S. Treasuries. Diversification across asset classes and geographic regions is essential to balance these risks.

Conclusion: A Strategic Allocation for Income-Seeking Investors

For investors prioritizing income and diversification, GEMD represents a compelling case. Its combination of high yield, low costs, and macroeconomic tailwinds positions it as a strategic allocation in a rising rate environment. While alternatives like HYDB offer slightly higher yields, GEMD’s unique exposure to EM growth and USD weakness provides a hedge against U.S.-centric risks. As global public debt reaches record levels and central banks grapple with inflation, the shift toward EM debt as an income-generating asset appears well-justified.

Source:
[1] High Yield Bond ETFs as Strategic Income Vehicles in a Volatile Market [https://www.ainvest.com/news/high-yield-bond-etfs-strategic-income-vehicles-volatile-market-2509/]
[2] Why Emerging Market Debt Deserves Consideration in Your Core Allocation [https://www.globalxetfs.com/articles/why-emerging-market-debt-deserves-consideration-in-your-core-allocation/]
[3] GEMD Summary [https://www.schwab.wallst.com/Prospect/Research/etfs/summary.asp?symbol=gemd]