EM Early to Tightening Party

By Eric Fine
Portfolio Manager, Emerging Markets Fixed Income

As we explained in our April update, we believe that lower growth is still not fully priced into the market. Since then, our position has not changed. While higher policy rates have been largely priced into the 2-year Treasury, which is at its 5-year high, the 30-year Treasury is not there yet. Accordingly, the Fund seeks to increase its low-beta duration and further reduce its exposure to emerging market currencies.

Emerging market (EM) central banks anticipated Fed hikes. They’re normally more belligerent, but in this latest installment, they’re also more preemptive. They entered the Russian-Ukrainian crisis having already tightened their monetary policy. However, growth risks abound, including political incentives from China that may outweigh economic incentives, adding to downside risks.

Year-to-date, the Emerging Markets Bond Fund (the “Fund”) has outperformed its benchmark due to the Fund’s very low duration and lack of Russian assets. For detailed information on the Fund’s performance and outlook for emerging market debt, download comment.

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This is not an offer to buy or sell, or a solicitation of an offer to buy or sell, any of the securities mentioned herein. The information presented does not imply the provision of personalized investment, financial, legal or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and has not been independently verified as to its accuracy or completeness and cannot be guaranteed. All opinions, projections, forecasts and forward-looking statements made herein speak as of the date of this communication and are subject to change without notice. The information contained herein represents the opinion of the author(s), but not necessarily that of VanEck.

Duration measures a bond’s sensitivity to changes in interest rates which reflects the change in price of a bond given a change in yield. This duration measure is appropriate for bonds with embedded options. Quantitative easing by a central bank increases the money supply engaged in open market operations with the aim of promoting increased lending and liquidity. Monetary easing is an economic tool used by a central bank to reduce interest rates and increase the money supply in an effort to stimulate economic activity. Correlation is a statistical measure of how two variables move relative to each other. Illusion of liquidity refers to the effect an independent variable might have on a security’s liquidity, as that variable fluctuates over time. An issue Holdouts in the fixed income asset class occurs when a country or bond-issuing entity is in default or on the verge of default and initiates an exchange offer with the aim of restructuring its debt held by existing bondholder investors. Carry is the benefit or cost of owning an asset.

Investing involves risk, including loss of principal. You may lose money investing in the Fund. Any investment in the Fund must be part of an overall investment program and not a complete program. The Fund is subject to risks associated with its investments in below investment grade securities, credit, currency management strategies, debt securities, derivatives, emerging market securities, foreign currency transactions , foreign securities, hedging, other investment companies, Latin American issuers, management, market, non-diversification, operational, portfolio rotation, sector and sovereign bond risks. Investing in securities denominated and/or domiciled abroad may involve increased risk due to currency fluctuations, as well as economic and political risks, which may be increased in emerging markets. As the Fund may invest in securities denominated in foreign currencies and some of the income received by the Fund will be in foreign currencies, changes in exchange rates may have a negative impact on the performance of the Fund. Derivatives may involve certain costs and risks such as liquidity, interest rate and the risk that a position cannot be closed at the most advantageous time. The Fund may also be exposed to the risks associated with lower quality securities.

Investors should carefully consider the investment objective of the Fund, the risks, charges and expenses of the investment company before investing. Bonds and bond funds will lose value as interest rates rise. The prospectus and the simplified prospectus contain this information and other information. Please read them carefully before investing. Please call 800.826.2333 or visit vaneck.com for up-to-date performance information as of the end of the most recent month and for a free prospectus and simplified prospectus.

About Rodney Fletcher

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