Trust Co Buys $5.5 Million in Vanguard Emerging Markets Bond ETF — What’s Driving Demand for EM Debt?

On Monday, Kansas-based The Trust Company disclosed the purchase of approximately $5.5 million worth of shares of the Vanguard Emerging Markets Government Bond ETF (NASDAQ:VWOB) in an SEC filing.

What happened

According to a filing with the Securities and Exchange Commission released on Monday, Trust Co increased its holdings in the Vanguard Emerging Markets Government Bond ETF by 83,649 shares in the third quarter. This move brought its total position to approximately 253,799 shares worth nearly $17 million as of September 30.

What else to know

VWOB now represents 1.7% of Trust Co's 13F reportable assets under management.

Top holdings after the filing:

• SHV: $84.46 million (8.6% of AUM)
• BND: $69.08 million (7.1% of AUM)
• AGG: $66.39 million (6.8% of AUM)
• VUG: $62.95 million (6.4% of AUM)
• VTV: $59.01 million (6% of AUM)

As of Friday, shares were priced at $66.90, up about 2% over the past year and lagging well behind the S&P 500's 18% gain.

Company overview

Company snapshot

• VWOB is an investment strategy that focuses on tracking the performance of an emerging markets government bond index using a sampling approach.
• At least 80% of assets are invested in index constituents.
• The fund is structured as a non-diversified ETF, aiming to provide broad exposure to emerging market government debt.

VWOB employs a passive indexing strategy, seeking to replicate the performance of its benchmark index through representative sampling. With a substantial asset base and a focus on income generation, VWOB provides exposure to emerging market fixed income.

Foolish take

Trust Co’s $5.5 million purchase of the Vanguard Emerging Markets Government Bond ETF (VWOB) comes amid rising institutional interest in high-yield international debt. The ETF, which tracks the Bloomberg USD Emerging Markets Government RIC Capped Index, offers exposure to sovereign and quasi-sovereign bonds across developing economies—and has become increasingly attractive amid moderating U.S. inflation and a weaker dollar.

With a 30-day SEC yield of 5.79% and a year-to-date return of about 10%, VWOB provides income-seeking investors a compelling alternative to developed-market bonds. The fund’s expense ratio of just 0.15% makes it a cost-effective way to access emerging market fixed income. According to a recent Morningstar analysis, investors have regained interest in EM debt ETFs after the category suffered losses in 2021 and 2022, largely thanks to their solid yields and amid growing interest in diversification beyond the U.S.

For long-term investors, VWOB offers this blend of income potential and diversification, but it comes with elevated risks tied to currency fluctuations, political instability, and liquidity constraints. Trust Co’s sizable addition suggests confidence that the reward side of that equation now outweighs the risk.

Glossary

ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding assets like stocks or bonds.

Emerging markets: Economies in the process of rapid growth and industrialization, often with higher risk and return potential.

Government bond: A debt security issued by a government to support spending and obligations.

13F AUM: Assets under management reported by institutional investors in quarterly SEC Form 13F filings.

Reportable AUM: The portion of a fund's total assets that must be disclosed in regulatory filings.

Dividend yield: Annual dividends paid by an investment divided by its current price, expressed as a percentage.

Non-diversified ETF: A fund that invests in a limited number of securities, increasing exposure to specific risks.

Passive indexing strategy: An investment approach aiming to replicate the performance of a market index rather than outperform it.

Representative sampling: A method where a fund holds a selection of securities that closely matches the characteristics of an index.

Constituents: The individual securities that make up an index or fund.

Asset base: The total value of assets held by a fund or investment vehicle.

Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.