Van Eck Global, the New York-based money management firm known for its commodities exchange-traded funds, rolled out the first emerging market debt ETF that owns bonds based in local currencies, raising the stakes in a space occupied by two funds that only focus on dollar-denominated debt.

What’s more, the Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) has a net expense ratio of 0.49 percent that’s lower than its competitors’ funds. The PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY) charges 0.50 percent, while iShares’ JPMorgan USD Emerging Markets Bond Fund (NYSEArca: EMB) has a 0.60 percent expense ratio. In their recent IndexUniverse.com podcast "Sometimes One ETF Is Just Better," Matt Hougan and Dave Nadig extol the virtues of Van Eck's new offering.

Emerging markets have become some of the most prospective investment markets in the past decade, particularly since the meltdown of 2008 that left the U.S. and other developed countries with relatively high levels of debt and lower growth prospects. In an interview on IndexUniverse.com, fundamental indexing pioneer Rob Arnott said he saw a “generational opportunity” in emerging markets.

“With EMLC, we’ve created an ETF that allows investors to participate in the dynamics of the local emerging market economies, which include potential for currency appreciation and higher yields, relative to their developed market counterparts,” Jan van Eck, principal at Van Eck, said in a press release.

EMLC Details

EMLC tracks the J.P. Morgan Government Bond Index-Emerging Markets Global Core Index. As of July 1, the benchmark had 171 constituents with maturities ranging from one to 30 years, and an average yield-to-maturity of 6.8 percent, according to the press release.

The index currently tracks a selection of bonds issued in local currencies by 13 emerging market countries representing Latin America, Eastern Europe, Africa and Asia.

The countries are: Brazil, Colombia, Egypt, Hungary, Indonesia, Malaysia, Mexico, Peru, Poland, Russia, South Africa, Thailand and Turkey. Exposure to any one of the countries is capped at 10 percent, under rules of the capitalization-weighted index.

Six countries were at that threshold at the end of the first half, including Brazil, Malaysia, Mexico, Poland, South Africa and Thailand, the company said.

By contrast, EMB, the iShares dollar-denominated emerging market debt ETF, had an index with 30 countries as of May 1, according to its prospectus. PYC, the competing dollar-denominated ETF from PowerShares, holds bonds from about 22 countries.

Hot Investment Market

Emerging market countries have come out of the global shock of 2008-2009 relatively unscathed. That’s partly because debt levels in developing countries are generally lower than in the developed countries, which face serious fiscal challenges in the years ahead to bring spending in line with available financial resources.

“Over the last few years emerging markets have demonstrated resilience as much of the developed world has experienced massive fiscal deterioration and skyrocketing debt levels,” Joyce Chang, head of global emerging markets and credit research with J.P. Morgan, said in the release.

“EM countries have driven global growth in recent years and have become one of the fastest growing asset classes, providing an important source of diversification for investors,” added Chang.

EMLC is the 26th ETF offered under Van Eck’s Market Vectors brand.