SNAPSHOT2 min read

What ETF flows say about emerging market debt opportunities

Outflows from the world’s largest passive emerging market debt ETF appear to be bottoming – is this an opportunity for investors?



James Barrineau
Head of Global EMD Strategy

Many investors view the trade war scenarios as especially negative for emerging market debt (EMD). How do we know? By the sharp downdraft in flows to the asset class.

Recent outflows from EMD

By far the largest passive exchange-traded fund (ETF) is iShares JP Morgan Emerging Markets Bond ETF, which tracks the emerging markets sovereign bond index. It has lost about $2.5 billion in assets since the beginning of April.

In isolation, that number seems to suggest that EMD is in for an extended period of struggling. But history suggests otherwise. In our experience, passive ETFs are often used by hedge funds, medium-sized investors and retail investors for tactical exposure to the asset class. So large swings in assets are hardly unique.

Historical trends

In each year since 2014 there has been a single brief but sharp period of outflows. On each occasion assets have been left around 15-19% lower. The exception was 2017 which saw a more modest fall of around 11%, as shown in the chart below.


Source: Bloomberg, 22 May 2019

What happens after this is what is most interesting. In the next three months, once the outflows bottom, investors have experienced positive returns in the emerging markets sovereign dollar bond index every year except for in 2018.

We list below the approximate index returns* for the three months after the iShares JP Morgan Emerging Markets Bond ETF’s assets bottom from the annual sharp period of selling:

2014: 0.11%

2015: 1.99%

2016: 3.26%

2017: 2.99%

2018: (-1.57%)

What does the current episode suggest?

In the past six trading days, assets have risen by a small amount which suggests the worst may be over if history repeats itself. Since there have never been two consecutive years of negative dollar returns in the past 23 years, we view this episode as more an opportunity than a cautionary tale.


*Figures depicts the three-month return of the EMB ETF following the sharpest outflow periods during the calendar years 2014 through 2018. Performance shown reflects past performance, which is no guarantee of future results. Results are not annualized. Other vehicles and funds would have achieved higher or lower results as this is for illustration only. Other longer-term periods would have achieved different results. AUM trough months for the EMB ETF for the last few calendar years were: May 2018, January 2017, February 2016, January 2015, and May 2014.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.


James Barrineau
Head of Global EMD Strategy


Fixed Income
James Barrineau
Market views
Emerging Markets

Please consider a fund's investment objectives, risks, charges and expenses carefully before investing. The Schroder mutual funds (the “Funds”) are distributed by The Hartford Funds, a member of FINRA. To obtain product risk and other information on any Schroders Fund, please click the following link. Read the prospectus carefully before investing. To obtain any further information call your financial advisor or call The Hartford Funds at 1-800-456-7526 for Individual Investors.  The Hartford Funds is not an affiliate of Schroders plc.

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada.  SFA markets certain investment vehicles for which other Schroders entities are investment advisers.”

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security/sector/country.

Schroders Capital is the private markets investment division of Schroders plc. Schroders Capital Management (US) Inc. (‘Schroders Capital US’) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).It provides asset management products and services to clients in the United States and Canada.For more information, visit

SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.