Some institutional investors are starting to wade back into emerging market debt. At the same time, retail investors appear to have reduced their allocations over the past 12 months, and still seem to be generally avoiding the asset class, according to Fran Rodilosso, fixed income portfolio manager for Market Vectors ETFs.
“Poor relative performance last spring and summer as interest rate volatility increased, and the headline risks around the Chinese economy, the Russia/Ukraine situation, Venezuela, Turkey, and a host of other situations are likely, in my opinion, to have caused many retail investors to approach emerging market debt with renewed caution,” said Rodilosso. “While no one can predict with certainty when the market will turn, I believe the time may be right for investors with a longer-term view to consider taking a fresh look at this asset class.”
Rodilosso noted that there is evidence that some institutional asset managers, including asset allocation strategists, pension funds, and foreign fund managers, are now increasing exposure to emerging markets in various ways. “These asset allocators may be looking for alternatives to the U.S. dollar, access to non-repressed yield curves, and at this point in the credit cycle, ways to increase the diversification of their credit portfolios,” the Market Vectors portfolio manager said.
“Remember that the investable debt universe in EM is largely investment grade,” Rodilosso added. “And many of the troubled markets have suffered in price terms. However, at the end of the day, it’s up to the investors and their advisors to judge if they are compensated for the risks they are taking.”
Mr. Rodilosso has over 20 years of experience trading and managing risk in fixed income investment strategies, including more than 17 years covering emerging markets. Among the Market Vectors ETFs under his watch are Investment Grade Floating Rate ETF (NYSE Arca: FLTR®), Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHYTM), Emerging Markets Aggregate Bond ETF (NYSE Arca: EMAGTM), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM®),Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC®), Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL®), International High Yield Bond ETF (NYSE Arca: IHY®), and Renminbi Bond ETF (NYSE Arca: CHLC®). As of March 31, 2014, the total assets for these ETFs amounted to approximately $1.4 billion.
Please note that the information herein represents the opinion of the portfolio manager and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. ©2014 Van Eck Global.
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 $23.4 billion in assets under management, as of March 31, 2014, making it one of the largest ETF families in the U.S. and worldwide.
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.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. The Funds' underlying securities may be subject to call risk, which may result in the Funds having to reinvest the proceeds at lower interest rates, resulting in a decline in the Funds' income.
The Funds may be subject to credit risk, interest rate risk and a greater risk of loss of income and principal than those holding higher rated securities. As the Funds may invest in securities denominated in foreign currencies and some of the income received by the Funds may be in foreign currency, changes in currency exchange rates may negatively impact the Funds’ returns. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict, and social instability. The Funds may loan their securities, which may subject them to additional credit and counterparty risk. The Funds may be subject to risks associated with investing in high-yield securities; which include a greater risk of loss of income and principal than funds holding higher-rated securities, as well as concentration risk; credit risk; hedging risk; interest rate risk; and short sale risk. Investors should be willing to accept a high degree of volatility and the potential of significant loss. For a more complete description of these and other risks, please refer to the Funds’ prospectus and summary prospectus.
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