Evaluating the Attractiveness of the SPDR Bloomberg Barclays Emerging Markets USD Bond ETF (EMHC) for Income-Seeking Portfolios

The SPDR Bloomberg Barclays Emerging Markets USD Bond ETF (EMHC) has emerged as a compelling option for income-seeking investors navigating a rising rate environment. With a 30-day SEC yield of 5.97% and a distribution yield of 6.01% as of August 26, 2025, EMHC offers a robust income stream that outpaces traditional bond benchmarks like the 10-year U.S. Treasury (4.8%) and the Bloomberg Aggregate Bond Index (5.1%) [1]. This yield potential is further bolstered by the fund’s portfolio of emerging market (EM) sovereign and quasi-sovereign bonds, which carry an average yield to worst of 6.56%, ensuring strong returns even in adverse conditions [1].

Yield Potential in a Rising Rate Environment

EMHC’s performance during the 2022–2023 Federal Reserve rate hikes provides critical insights. Despite the Fed’s aggressive tightening cycle—raising rates from near zero to 5.25–5.50% by July 2023—the fund delivered a 12-month return of 8.21% as of July 31, 2025, and a year-to-date (YTD) return of 6.58% [1]. This resilience contrasts sharply with the -17.8% annual return in 2022 alone [3], underscoring the fund’s ability to recover as inflationary pressures eased and EM credit fundamentals improved. The fund’s option-adjusted duration of 6.90 years [1] suggests moderate sensitivity to rate changes, balancing income generation with manageable price volatility.

Diversification Benefits

EMHC’s exposure to a diversified basket of EM USD bonds offers unique advantages. The fund tracks the Bloomberg Emerging Market USD Sovereign and Sovereign Owned Index, which includes bonds from 20+ countries, with a 5% country cap to mitigate concentration risk [1]. This structure reduces reliance on any single economy, a critical feature in volatile markets. For example, during July 2025, EM corporate bonds (as measured by the JPMorgan CEMBI BD index) returned 0.91%, with high-yield credits outperforming at 1.21% [2]. Such performance highlights EMHC’s potential to capitalize on spread compression and macroeconomic growth in select EM economies, even as global rates rise.

Cost Efficiency and Risk-Adjusted Returns

With a gross expense ratio of 0.23%, EMHC is among the most cost-efficient options in its category [1]. This low fee structure enhances net returns, particularly in a high-yield environment where expenses can erode income. While the fund’s duration exposes it to rate risk, its 6.56% average yield to worst [1] and strong credit quality (weighted average rating of BBB- or higher) [1] provide a buffer against defaults. Additionally, EMHC’s USD-denominated structure insulates investors from currency volatility, a key concern in EM investing [1].

Conclusion

For income-seeking portfolios, EMHC combines competitive yields, diversification, and cost efficiency in a rising rate environment. While its duration implies some price sensitivity, the fund’s historical resilience during the 2022–2023 tightening cycle and its focus on high-yield EM bonds make it a strategic addition to diversified portfolios. Investors should monitor macroeconomic shifts, particularly in EM credit spreads and Fed policy, but EMHC’s current metrics suggest it remains a strong contender for those prioritizing income over capital preservation.

Source:
[1] SPDR® Bloomberg Emerging Markets USD Bond ETF, [https://www.ssga.com/us/en/intermediary/etfs/spdr-bloomberg-emerging-markets-usd-bond-etf-emhc]
[2] High Yield Monthly Update - August 2025, [https://www.nomura-asset.co.uk/insight/high-yield-monthly-update/]
[3] SPDR Bloomberg Emerging Markets USD Bond ETF, [https://www.dividend.com/etfs/emhc-spdr-bloomberg-emerging-markets-usd-bond-etf/]