This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Why It Pays to Own These Emerging Markets Bonds

NEW YORK ( TheStreet) -- Wall Street strategists are warning investors to be wary of bond funds. When interest rates rise, bond funds tend to drop. Plenty of economists expect rates to rise soon as the economy grows.

Investors recently got a taste of the pain that could lie ahead. During the past month, interest rates on 10-year U.S. Treasury bonds rose from 1.60% to 1.93%. In response to the rate move, iShares Core Total U.S. Bond Market ETF (AGG), which tracks the Barclays aggregate bond index, lost 0.6%, according to Morningstar.

Seeing the losses, you may be tempted to dump all your bonds. But a better approach is to diversify your fixed-income portfolio, including some funds that don't necessarily move in lockstep with the rest of the bond markets. Top diversifiers include funds that hold emerging markets bonds denominated in local currencies.

During the past month, local currency funds proved their value, rising as most U.S. bond funds sank. Funds that returned more than 1% for the month include Market Vectors Emerging Markets Local Currency Bond ETF (EMLC) and WisdomTree Emerging Markets Local Debt (ELD).

In the past, few emerging markets bond funds held securities that were denominated in local currencies, such as Mexican pesos or South African rand. Instead, the funds owned bonds that paid interest in dollars or euros. Investors steered away from emerging markets currencies, fearing that they could collapse and erode the value of shares for U.S. investors.

Then in recent years, the dollar began to appear less reliable. With the U.S. running massive trade and budget deficits, investors feared that the currency could sink. At the same time, currencies in the emerging markets have become more compelling. Many countries in Asia and Latin America have balanced budgets and strong economies. That has helped to boost the currencies.

As investors became more comfortable with emerging markets, companies introduced local currency funds. New entrants include WisdomTree Asia Local Debt (ALD) and iShares Emerging Markets Local Currency Bond (LEMB). While they remain in the minority, local currency funds have gained a bigger following as investors have sought ways to profit from a weaker dollar. "People want to diversify away from the dollar because they are concerned that the Federal Reserve may be printing too much money," says Fran Rodilosso, a portfolio manager for Market Vectors.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
ALD $46.36 -0.34%
AGG $110.51 0.13%
EMLC $20.11 -0.98%
ELD $40.15 -0.37%
LEMB $44.24 -0.29%

Markets

DOW 18,120.69 +23.79 0.13%
S&P 500 2,100.83 +2.30 0.11%
NASDAQ 4,981.7740 +14.6330 0.29%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs