Time to Rethink the Role of Emerging Market Bonds
Emerging markets have done well this year and should continue to attract investor interest around the globe. Latin America is leading year-to-date.
The Barbell strategy involves putting half your portfolio in defensive, low-beta sectors or assets and the other half in aggressive, high-beta sectors or assets.
Emerging market debt can be a great source of income potential in a diversified portfolio, provided you can manage it during a period of extreme volatility.
The VanEck Vectors EM Local Currency Bond ETF (EMLC) could be a good entry point after it took a hit following rising interest rates and volatility in the US dollar.
You have two options when it comes to investing in emerging market bonds—hard currency bonds and local bonds.
Investors are stepping back into emerging market bonds after removing billions of dollars from emerging markets in 2016.
Strong investor interest in emerging market debt has continued despite adverse political and economic issues in some countries.
According to a recent BofA Merrill Lynch Global Investment strategy report, emerging markets are expected to grow at a modest pace of 4.7% in 2017.
Negative bond yields in Japan and low Fed funds rates in the United States and the Eurozone were one reason emerging market bonds performed well in 2016.
Since the US presidential election, emerging markets have bounced back as though the election never happened.
Investors looking for opportunities in fallen angel bonds can look at the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL).
Although Hungary and Turkey credit spreads were at similar levels and generally moved together through 2014, these spreads began to diverge in early 2015.
The Turkish lira plunged to record lows against the dollar following its downgrade by Moody’s and S&P, who cited increased political instability as well as geopolitical stresses and turbulence.
In recent years, emerging market (EMLC) (HYEM) ratings have improved considerably due to the strengthening macroeconomic framework as well as years of reforms.
Strong Local Currency Performance As Rates Remain Steady Returns in the emerging markets debt space have so far in 2016 ranked commensurately with risk. More specifically, local debt has been…
As the chart above shows, flows into emerging markets funds remained positive but diminished considerably from July and August.
Strong investor interest in emerging market debt (EMLC) (HYEM) has continued despite adverse political and economic issues in some countries.
Negative bond yields in Japan and the Eurozone, coupled with very low federal funds rates in the United States, are part of why emerging market bonds and currencies have performed so well in 2016.
Emerging market (or EM) debt (EMLC)(HYEM) has, over the last several years, struggled as an asset class.
In the current market environment, duration risk has risen across bond markets (BND) (LQD). When interest rates rise, bonds with a higher duration will likely be affected more.