This year, income-starved investors have not been shy about embracing some adventurous fixed income assets, including emerging markets bonds. In general, fixed income exchange-traded funds (ETFs) are on a torrid, record-breaking asset-gathering pace this year. And emerging markets bond ETFs are getting on that act. Indeed, the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has added more than $3.5 billion in new assets this year, cementing its status as not only the largest emerging markets debt ETF but as the largest fund of any variety holding bonds from the developing world.

"Investors are sweeping away doubts about emerging market bonds and pouring record amounts into ETFs that track these assets," said Markit in a recent note. "Although there are four months left in the year, emerging market bond ETFs have already surpassed last year's record inflow ($10.1 billion) by more than $5 billion." (See also: ETF Inflows Continue Assault on Record Books.)

However, the weak dollar is encouraging investors to embrace ETFs that hold emerging markets bonds denominated in local currencies. The U.S. Dollar Index is down about 9% year to date, which is good news for emerging markets currencies and debt denominated in those currencies. A stronger dollar can lead to higher financing costs for emerging markets issuers.

"One particular aspect of the rush into emerging market bonds is a newfound appreciation for assets denominated in local currencies," said Markit. "These formerly niche funds have witnessed inflows representing 73% of their AUM since the start of the year, which is nearly twice the 41% growth registered by dollar-denominated funds. Incumbent dollar-denominated emerging market bond ETFs still manage two-thirds of AUM, but the gap is closing fast." (See also: Invest in Emerging Market Bonds With These ETFs.)

This year, investors have added over $1.5 billion to the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC). EMLC has a 30-day SEC yield of 5.5% and an effective duration of 5.1 years. Brazil, Mexico, Poland and Indonesia combine for about 37% of that ETF's weight. EMLC is trouncing the dollar-denominated EMB by 500 basis points year to date.

The actively managed WisdomTree Emerging Markets Local Debt Fund (ELD) is another local currency emerging markets bond ETF proving its mettle this year. Year to date, ELD is topping EMB by 340 basis points. ELD, which has a 30-day SEC yield of 5.8% and an effective duration of 4.8 years, devotes nearly one-third of its weight to Brazil, Indonesia and Russia. Over three-quarters of that ETF's holdings are rated A or BBB. Investors have allocated nearly $15 million in new capital to ELD this year. (See also: 3 Best High-Yielding Blended Bond ETFs.)

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