Market Vectors ETFs
Van Eck Mutual Funds
1/10/14: Eric Fine makes the case that investors have unreasonably condemned the bonds of some well-run emerging markets governments. “We believe a number of emerging countries have a winning combination of strong fundamentals and high real interest rates,” he writes. View article »
12/10/13: Money managers discuss their views on owning Ukrainian debt amidst the country’s political unrest. “We’ve not found a way to be exposed to good things in Ukraine that are isolated from the country,” says Eric Fine.View article »
11/01/13: Bloomberg delves into the reasons for the gains analysts are forecasting for the Mexican peso in 2014. Eric Fine says the country’s planned energy reforms are “the kinds of things that can take a country to the next level and generate upward pressure on the currency.”View article »
8/02/13: The Wall Street Journal delves into emerging markets stock and bond funds’ July “comeback,” and consults Eric Fine. “In this environment, cash acts as a shock absorber as we transition to a higher rates environment,” Fine says. View article »
Subscribe to email updates
Learn more on how to purchase shares of Van Eck Mutual Funds
By: Eric Fine, Portfolio Manager
The Fund’s biggest winners in January were Portugal (hard-currency), Sri Lanka (local-currency), and Indonesia (local-currency). The Fund’s biggest losers were Argentina (hard-currency), Hungary (local-currency), and Chile (local-currency).
Let’s start with a tailwind: real interest rates and credit spreads currently are high in a number of emerging markets (EM). Another tailwind: EM policy has responded, and much of the policy
response is a “simple” function of flexible exchange rate regimes, not really requiring politicians to be pro-active or even to take “action”. In the first phase of the EM mini-crisis that started in May/June of 2013, the market focused its (negative) attention on countries with large current account deficits. The immediate response of policymakers in Brazil, India, and Indonesia was, technically nothing. Flexible exchange rate regimes basically mean that if the market chooses to be concerned about external imbalances, the currency adjusts. Imports are curtailed (which is, in our experience, the normal and more dramatic initial effect), and, as a result, exports are potentially boosted.
Now, in some countries, inflation memory exists, so weak currencies can potentially feed through into rising inflation expectations. So, a logical follow-on policy may be higher interest rates.
This has tended to stabilize the currency (ceteris paribus), encourage savings, and slow the economy down, reducing inflationary pressures, as well as imports. Even countries whose overall policy frameworks do not impress us, and which we do not own, e.g., Turkey, South Africa, and Ghana, have adjusted to the market’s concerns and allowed currency weakness and hiked interest rates. (However, in our opinion, just not enough.)
One key headwind remains that the DM, particularly the US, is experiencing rising growth levels, whereas the EM is experiencing lower growth. This could attract money away from the EM and into the DM. EM debt and equity markets have seen outflows every week so far this year – dramatically so in equities. Moreover, the “good” policy we praise above may preserve reserves and keep the balance sheet strong. But it does hurt growth, exacerbating this money flow.
Another key headwind is that the EM debt market community may not be as aware of corporate borrowing activity as it should be. Key countries may have more corporate debt in hard-currency than conventional econometrics would indicate. Traditionally, market participants use national central bank balance of payments data to determine corporate debt issuance. The standard practice for central banks has been not to count corporate debt issued by an overseas subsidiary of a domestic company. This issue is now getting more attention and rightly so.
Read full January Commentary >>
Eric Fine and Natalia Gurushina
Portfolio Manager and Economist, Van Eck Unconstrained Emerging Markets Bond Investment Team
View now »
Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Fund
Portfolio Manager, Van Eck Emerging Markets Bond Investment Team
Improvements in economic policies, strong balance sheets and improved creditworthiness of local governments continue to foster a strong case for investment in the emerging markets bonds.
Emerging Market Bonds Defined
“Emerging Markets Hard Currency Bonds” are bonds denominated in foreign currencies that are generally widely accepted around the world (such as the US Dollar, Euro or Yen).
“Emerging Markets Local Currency Bonds” are bonds denominated in the local currency of the issuer.
“Emerging Markets Sovereign Bonds” are bonds issued by national governments of emerging countries in order to finance a country's growth.
“Emerging Markets Quasi Sovereign Bonds” are bonds issued by corporations domiciled in emerging countries that are either 100% government owned or whose debts are 100% government guaranteed.
“Emerging Markets Corporate Bonds” are bonds issued by non-government owned corporations that are domiciled in emerging countries.
Long term, an allocation to emerging markets bonds may provide diversification benefits as emerging markets fixed income tends to be less correlated to developed market fixed income.
Unless otherwise stated, portfolio facts and statistics are shown for Class A shares; other classes may have different characteristics.
†NAV: Unless you are eligible for a waiver, the public offering price you pay when you buy Class A shares of the Fund is the Net Asset Value (NAV) of the shares plus an initial sales charge. The initial sales charge varies depending upon the size of your purchase. No sales charge is imposed where Class A or Class C shares are issued to you pursuant to the automatic investment of income dividends or capital gains distribution. It is the responsibility of the financial intermediary to ensure that the investor obtains the proper “breakpoint” discount. Class C, Class I and Class Y do not have an initial sales charge; however, Class C does charge a contingent deferred redemption charge. See the prospectus and summary prospectus for more information.
1Expenses are calculated for the 12-month period ending 12/31/13: Class A: Gross 1.67% and Net 1.25%; Class C: Gross 2.81% and Net 1.95%; Class I: Gross 1.03% and Net 0.95%; Class Y: Gross 1.74% and Net 1.00%. Expenses are capped contractually until 05/01/14 at 1.25% for Class A, 1.95% for Class C, 0.95% for Class I and 1.00% for Class Y. Caps exclude certain expenses, such as interest.
2The J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM) tracks local currency bonds issued by Emerging Markets governments. The index spans over 15 countries. The J.P. Morgan Emerging Markets Bond Index Global Diversified (EMBI) tracks returns for actively traded external debt instruments in emerging markets, and is also J.P. Morgan’s most liquid U.S-dollar emerging markets debt benchmark.
3Average Yield to Worst measures the lowest of either yield-to-maturity or yield-to-call date on every possible call date. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. Effective maturity is the length of time until a fixed income investment returns its original investment. Distribution Yield is the amount of cash flow paid out and is calculated by dividing the annual income (interest or dividends) by the current price of the security. Averages are market weighted. These statistics do not take into account fees and expenses associated with investments or the Fund.
The views and opinions expressed are those of Van Eck Global. Fund manager commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Any discussion of specific securities mentioned in the commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary.
You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. The Fund is subject to risks associated with its investments in emerging markets securities. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced 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 currency exchange rates may negatively impact the Fund’s return. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may also be subject to credit risk, interest rate risk, sovereign debt risk, tax risk, non-diversification risk and risks associated with non-investment grade securities. Please see the prospectus and summary prospectus for information on these and other risk considerations.
Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of the investment company carefully before investing. Bond and bond funds will decrease in value as interest rates rise. The prospectus and summary prospectus contain this and other information. Please read them carefully before investing.
Not FDIC Insured — No Bank Guarantee — May Lose Value
Van Eck Securities Corporation, Distributor335 Madison Avenue, 19th FloorNew York, NY 10017800.826.2333
© 2014 Van Eck Securities Corporation. All rights reserved.