Market Vectors’ Fran Rodilosso: As the Emerging Market Sell-off Continues, Pockets of Value May Remain in EM Sovereign and Hard Currency Debt

After a year of largely negative returns, fixed income asset classes appear to already be facing significant headwinds in 2014. But according to Fran Rodilosso, fixed income portfolio manager with Market Vectors ETFs, some high yield-oriented asset classes, and selected emerging market (EM) debt in particular, may be getting unduly punished.

“Emerging markets are suffering from a variety of afflictions at the moment,” said Rodilosso. “The concern remains that Fed tapering may pull more investment dollars away from both emerging markets debt and equity. This has been compounded by negative news and/or economic data from Turkey, South Africa, Argentina, Ukraine and, most importantly, China.”

“The trend of capital flows away from emerging markets generally has a self-fulfilling, negative effect. Several of the countries being most impacted by the current sell-off are suffering political as well as economic stress,” he continued. “But we believe there is still a far more solid underpinning to most emerging economies, and to their government balance sheets, than there has been in previous periods of stress.”

In some cases, added Rodilosso, domestic capital markets in EM nations are more mature than they were in previous crises, and while emerging markets debt asset classes may see additional outflows in the coming months, the long-term trend of higher institutional allocations to various types of EM debt appears to be intact.

Rodilosso went on to note that EM high yield corporates1 (denominated in US dollars) ended 2013 with a spread of more than 200 bps versus U.S. high yield corporates2, some 175 bps wider than where they were at the start of the year. The spread in EM investment grade corporates3 was more than 60 bps at year-end, with EM investment grade corporates’ effective duration being more than 100 bps lower than U.S. investment grade corporates4, he added.

“EM debt has experienced a relative pick-up in spreads over the last nine months and I believe there are pockets of value still to be found around the globe. I have no doubt that timing will play a factor, but it is not too early to start looking,” Rodilosso said.

Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, and currently oversees Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC®), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM®), Investment Grade Floating Rate ETF (NYSE Arca: FLTR®), International High Yield Bond ETF (NYSE Arca: IHY®), Emerging Markets Aggregate Bond ETF (NYSE Arca: EMAGTM), Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL®), Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHY), and Renminbi Bond ETF (NYSE Arca: CHLC®). As of December 31, 2013 the total assets for these ETFs amounted to approximately $1.4 billion.

Indices are not securities in which investments can be made.

About Market Vectors ETFs

Market Vectors exchange-traded products have been offered since 2006 and span many asset classes, including equities, fixed income (municipal and international bonds) and currency markets. The Market Vectors family totaled $22.1 billion in assets under management, making it the seventh largest ETP family in the U.S. and 10th largest worldwide as of December 31, 2013.

Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals including gold, and other alternative asset classes.

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