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Are there opportunities still to be found in the fixed income landscape as we head further into 2013? Yes, if one knows where to look, according to Fran Rodilosso, fixed income portfolio manager at Market Vectors ETFs.
“The first step for investors is to realize that many traditional fixed income investments are not likely to deliver the same types of returns we saw in 2012,” said Rodilosso. “Although one approach some investors might apply this year is to add leverage, doing so has often proven to be a perilous proposition. Instead, I believe the time may be right to consider emerging markets destinations that offer more attractive yields on top of currency and credit fundamentals that appear to me to be on much more solid footing than the U.S. dollar, euro or yen investments.”
“Interest rates in emerging markets countries are considerably higher than those in the developed world, despite emerging markets’ significantly lower debt-to-GDP ratios and fiscal deficits,” added Rodilosso. “The vast majority of emerging markets economies are growing faster than the U.S. and I see an asset class that still can deliver incremental yield as well as diversify away from the U.S. dollar.” Rodilosso went on to note that currency movements can and have played a large role in the returns on emerging markets local currency bond investments. “But that is a positive part of the value proposition we see today – emerging markets currencies are not undergoing the same monetary experiment that could lead to a debasement of the world’s reserve currencies.”
“The investable universe is continuing to grow in 2013, providing a greater ability to diversify” he continued. “For example, our Market Vectors Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC) tracks a modified version of JP Morgan’s GBI-EM Index, which has recently seen a rise in the number of constituent nations. After adding Nigeria in late 2012, JP Morgan announced yesterday that Romania is now eligible for inclusion and Romanian debt will begin entering the index on March 1st.”
“However, it is still my belief that global asset managers remain under-allocated when it comes to local currency emerging markets debt,” he said. “Perhaps this is due to some investors’ tendencies to associate emerging markets in general with past boom/bust cycles. Add to that the fact that the relative strength of emerging markets may in itself be something that many investors are finding difficult to digest, let alone believe in enough to allocate significant capital, and that may very well be why we’re seeing value remaining in these markets.”
Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, including 17 years covering emerging markets. Among the Market Vectors ETFs under his watch are Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), LatAm Aggregate Bond ETF (NYSE Arca: BONO), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), International High Yield Bond ETF (NYSE Arca: IHY), Renminbi Bond ETF (NYSE Arca: CHLC) and Investment Grade Floating Rate ETF (NYSE Arca: FLTR). As of December 31, 2012, the total assets for these ETFs amounted to approximately $1.5 billion.
Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions.
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. This not a recommendation to buy or sell any security nor is it intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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 totals $27.9 billion in assets under management, making it the fifth largest ETP family in the U.S. and eighth largest worldwide as of December 31, 2012.
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. Van Eck Global has offices around the world and manages approximately $36.6 billion in investor assets as of December 31, 2012.
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 Fund may be subject to credit risk, interest rate risk and a greater risk of loss of income and principal than higher rated securities. As the Fund will invest in securities denominated in foreign currencies and some of the income received by the Fund will be in foreign currency, changes in currency exchange rates may negatively impact the Fund’s return. 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. Investors should be willing to accept a high degree of volatility and the potential of significant loss. The Fund may loan its securities, which may subject it to additional credit and counterparty risk. For a more complete description of these and other risks, please refer to the Fund’s prospectus and summary prospectus.
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Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market.
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