Though emerging markets sovereign hard and local currency debt have been among the most volatile fixed income asset classes for the past several weeks, the longer term trend of portfolio allocations to emerging market debt asset classes is a major theme that will continue for the next several years, according to Fran Rodilosso, Fixed Income Portfolio Manager at Market Vectors ETFs.
“U.S. interest rate volatility was the spark that eventually led to a broader sell-off in fixed income markets globally. Higher interest rates and signs of growth in the U.S. have also fueled a move sharply higher in the U.S. dollar versus virtually every major emerging market currency, save the Chinese Yuan,” said Rodilosso. “No doubt some of the fundamental developments in Brazil, Turkey and South Africa have compounded negative currency and fixed income moves in those countries.”
Rodilosso added that their underlying debt fundamentals, reserve positions and interest rate flexibility still remain favorable for emerging markets as a whole in comparison with much of the “developed” world. The current environment has tempered thoughts, however, of easier monetary policy in a number of cases, which has made interest rate trades potentially less attractive for the time being.
“That being said,” Rodilosso added, “I am still of the opinion that the evolution of the emerging markets local currency debt and corporate debt asset classes will continue on a positive trend, and that any prolonged period of underperformance is likely to bring about buying opportunities relative to other sovereign and corporate debt 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 Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC), Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHY), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), International High Yield Bond ETF (NYSE Arca: IHY), Investment Grade Floating Rate ETF (NYSE Arca: FLTR), LatAm Aggregate Bond ETF (NYSE Arca: BONO) and Renminbi Bond ETF (NYSE Arca: CHLC). As of March 31, 2013, the total assets for these ETFs amounted to approximately $1.9 billion. 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 totaled $26.1 billion in assets under management, making it the fifth largest ETP family in the U.S. and ninth largest worldwide as of March 31, 2013.