Finding Jewels in Emerging Markets Bond Funds
Cirmani says that in coming years the emerging economies are likely to grow faster than the U.S. That should enable the local currencies to strengthen against the dollar. "The emerging markets will continue to have an edge," he says.
Should you buy a local-currency fund or one that holds dollar bonds? That depends on your view on the dollar and you appetite for risk. Dollar bears might prefer a local-currency fund. But to build a diversified portfolio, consider holding two funds, one specializing in dollar bonds and a second that focuses on local-currency issues.
Another approach is to buy a fund that owns both kinds of bonds. A fund that holds a mix is Payden Emerging Markets Bond (PYEMX). During the past five years, the fund has returned 7.6% annually, outdoing 56% of competitors.
The fund holds both local-currency and dollar bonds from Indonesia, says Payden strategist Arthur Hovsepian. The bonds are rated BB, one step below investment grade, but the outlook is improving. The country is on the path to winning an investment-grade rating. That should help to boost the bond prices.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV