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.
The US GDP growth outlook is near its potential at ~3%, with increased investment in infrastructure.
The Permian Basin, which spans parts of West Texas and New Mexico, is considered one of the most prolific regions for oil and gas production in the US.
Chesapeake Energy’s (CHK) short interest ratio (short interest as a percentage of float) on January 11, 2017, was ~13.3%.
CHK’s stock has risen 66% year-over-year. Meanwhile, its peers Rice Energy and WPX Energy have risen ~115% and 181%, respectively, in the same period.
Chesapeake Energy’s (CHK) current implied volatility is ~55%, ~4% higher than its 15-day average of 52.5%.
Chesapeake Energy’s (CHK) 3Q16 EV-to-adjusted EBITDA (enterprise value to adjusted earnings before interest, tax, depreciation, and amortization) ratio was 34.7x.
Chesapeake Energy’s (CHK) forward EV-to-EBITDA multiple of ~8.8x is slightly overvalued compared to its peer average of 7.6x.
In 3Q16, Chesapeake Energy (CHK) reported cash flow from operations (or CFO) of ~$376 million, ~18% higher than its CFO in 3Q15.
CHK expects to achieve cash flow neutrality by 2018 resulting from production growth driven by its 2017 investments.
A presentation released by CHK in October 2016 noted that it had reduced $2.1 billion worth of its debt in 2015 and 2016 as of September 30, 2016.