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The interest rate blahs are likely to continue for some time. That's great news if you're a prospective homebuyer but lousy news if you're a dedicated low-risk investor. It means that returns on perceived safe haven securities like GICs and investment grade bonds will remain low for at least the next year.

There is a way to shoot for a better return while staying in the fixed income sector but you have to be willing to take more risk. Buy an exchange-traded fund (ETF) or mutual fund that specializes in emerging market bonds. The interest rates on the holdings in these funds are higher than those in North America and Western Europe and are likely to stay that way for the foreseeable future.

One that you may want to look at is the iShares J.P. Morgan Emerging Markets Bond ETF (EMB-N). Here are the details.

Exchange: NYSE
Recent price: $115.39 (U.S.)
Annual payout: $5.11 (trailing 12 months)
Yield: 4.4 per cent
Risk Rating: Higher risk
Recommended by: Gordon Pape
Website: www.ishares.com

The security:
This is a U.S. ETF that seeks to emulate the investment results of an index comprised of about 30 U.S. dollar denominated emerging markets sovereign bonds. The issuers include such countries as Turkey, the Philippines, Colombia, Russia, Hungary, Brazil, Venezuela, Indonesia, Poland, Peru and Mexico.

Why I like it:
As mentioned, emerging market bonds offer higher interest rates than issues from developed markets. This means the fund has the potential of providing above-average cash flow (the trailing 12-month yield is 4.4 per cent), as well as possible capital gains. The fact that the bonds are denominated in U.S. dollars provides foreign exchange certainty. The MER is a little on the high side at 0.6 per cent but the Canadian-dollar hedged version of the fund (XEB), which invests in exclusively in EMB units, is even higher at 0.73 per cent. You would only choose that one if you believe the loonie is going to rise substantially against the greenback.

Performance:
The fund has been having an excellent year with a 12-month gain to Aug. 27 of 13.85 per cent. However, it can be quite volatile; it lost 7.4 per cent in 2013 after chalking up four straight years of impressive gains. Despite that setback, the five-year average annual compound rate of return to July 31was 9 per cent.

Risks:
The credit quality of the portfolio is low with only 47.5 per cent of the issues rated BBB or better by Standard & Poor's. So the risk of default is much higher than in a typical Canadian or U.S. bond fund. The debt of countries such as Russia and Venezuela is especially problematic right now.

The fact the fund invests in U.S. dollar bonds and trades in U.S. dollars adds some currency risk. If the loonie rises against the greenback, you'll suffer an exchange rate loss. On the other hand, if our currency slides, you win.

Distribution policy:
The fund pays monthly distributions. They vary somewhat but have generally been in the range of $0.40 (U.S.) to $0.42 recently.

Tax implications:
As this is a U.S. based entity, distributions will be subject to a 15 per cent withholding tax unless the units are held in a retirement plan. That means an RRSP or RRIF, but not a TFSA. You may think you can avoid the withholding by buying XEB instead but that is not the case. That fund simply invests in units of this one so the withholding tax also applies. You just don't see it; it's paid out before distributions are made.

Who it's for:
This ETF is for investors who want exposure to higher-interest bonds and are willing to accept an elevated level of risk.

How to buy:
This is a big ETF with more than $5.2-billion in assets under management. The units trade actively on the New York Stock Exchange and any broker can acquire them for you.

Summing up:
This ETF offers a high-yield alternative to GICs and Canadian bond funds but it carries more risk as well. Ask your financial adviser if it is suitable for your account.