The VanEck Emerging Markets Bond Fund was down -0.27% in March, compared to up 0.36% for its benchmark, the 50% J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM) and 50% J.P. Morgan Emerging Markets Bond Index (EMBI). Year to date (YTD), the fund is up 3.31%, compared to 3.28% for its benchmark. The Global Agg and 10-year Treasuries were up YTD by 2.92% and 3.94%, respectively. Emerging markets (EM) local currency is up 4.31% YTD! During March, Zambia (local) led the outperformers followed by “peace trade” Poland (local), Hungary (local), and a zero weight in weakening Ukraine bonds. Underperformers for the month were Turkey, India, Romania, and Saudi. We reduced portfolio duration significantly, but the reductions were focused on spread duration, not risk-free duration (i.e., local-currency yield curves). We like local currency but are cautious on spread duration (not something for a bumper-sticker, sorry). The fund has around 57% in curated local currency, 41% in USD bonds, with a noteworthy underweight to Brazil and South Africa in local currency. Carry is 8.3%, yield to worst (YTW) is 9.5%, and duration is 6.1.

Average Annual Total Returns^*(%) (In USD)

^* Returns less than one year are not annualized.

Expenses: Class A: Gross 2.08%, Net 1.21%; Class I: Gross 1.34%, Net 0.86%; Class Y: Gross 1.35%, Net 0.96%. Expenses are capped contractually until 05/01/25 at 1.20% for Class A, 0.85% for Class I, 0.95% for Class Y. Caps excluding acquired fund fees and expenses, interest, trading, dividends, and interest payments of securities sold short, taxes, and extraordinary expenses.

The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.

The “Net Asset Value” (NAV) of a Fund is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF’s intraday trading value. Investors should not expect to buy or sell shares at NAV.

It’s not EM generating risk, it’s DM. Yet again. The starting themes for 2025 are “bonds over stocks and international over US”. You don’t need a Venn diagram to know that EM bonds are smack in the middle! The table below makes two important points. First, US stocks were down (-4.90%) and US Treasuries were up (+3.53%) for the first time since the first quarter of 2020! That will get attention, and obviously improves the backward-looking risk/return statistics of Treasuries in the standard 60/40 model. By attention, we mean inflows into bonds generally. Second, international stocks (+6.54%) beat US stocks (-4.90%) in the first quarter. Look at the bottom two rows of the chart below and you’ll see this almost never happened in the last five years. That will also get attention too, we think, meaning inflows into international, outflows from US. Those two being the dominant themes of the year could impact EM bonds positively via flows.

Exhibit 1 – Treasuries and International Stocks Beat US Stocks

Source: Morningstar. Data as of March 2025. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333.

March was all about pricing tariff and related recession risks (yet again). US equities were down…and Treasuries were actually up, as we noted above, but our point now is that we view this as a classic recession trade. But, supposed-to-be riskier and higher-beta EM local currency performed better than Treasuries! It’s kind-of weird to many that the riskiest EM bonds are rallying in a big risk-off month. Not to us. Chalk it up to two drivers: First, contained/rallying US 2-year rates. Exhibit 2 shows the different paths of US 2-year Treasury yields and US 10-year Treasury yields recently. What strikes us is the tighter range with capped upside of 2-year rates, which are also setting a cycle low. Compare this to the uncapped sell-off in 10-year rates and notice that they are not (yet) setting a cycle low. So what? 2-year rates drive currency moves, 10-year rates do not. So, this is very supportive of EM currencies. (This is another layer, but stronger EM currencies can support rallies along their risk-free yield curves – this explains our acceptance of duration in local currency compared to our aversion in USD/spread bonds.) We won’t chart it this month, but almost all EMFX is up YTD, led by local currency as we noted.

Exhibit 2 – FX Cares More About Capped 2-Year Treasury Yields Than Uncapped 10-Year Yields^*

Source: Bloomberg. Data as of March 2025. Past performance is no guarantee of future results. *Short-term rates (2-year) are falling and seem limited in how high they can bounce back — they’ve hit a new low for this cycle. Long-term rates (10-year) are also falling, but more freely — and they haven’t hit new lows yet.

Reason two is more EM Exceptionalism^TM. This is our old mantra – EMs have low debt, higher real rates, and often win from geopolitics, in a world worried about (and exposed to) DM debt levels, co-opted central banks, and geopolitics mostly hurting DM. We’ll stop pounding this theme when it’s on the front pages. But we’ll note yet again that CNY remains very stable in the face of tariff noise. This is still an important anchor for EM currencies, even though we don’t mention it every single month. And this EMFX stability is occurring with rising recession risk, consistent with our unusual view that the bulk of China’s property crisis is over (which we wrote about in previous monthlies). Put differently, if global demand (relative to the US) and commodity price stability maintain, and you have US front-end rates rallying, you are in a real sweet-spot for EMFX obviously, as the currencies can remain stable or strong while their risk-free bond curves also rally.

Exposure Types and Significant Changes

The changes to our top positions are summarized below. Our largest positions in March were Mexico, Indonesia, Colombia, Poland and Malaysia:

• We increased our local currency exposure in Indonesia and Mexico. Indonesia is among higher-yielding countries in EM Asia, and local yields are correlated with U.S. Treasuries, which might be re-pricing the probability of a recession. Even though domestic fiscal noise is persistent, in practice, fiscal risks are contained. In terms of our investment process, this improves the technical test score for the country. Mexican local yields also follow U.S. Treasuries quite closely. Further, President Sheinbaum is playing the tariff game smartly, and her latest domestic political moves (including the appointment of the new minister of finance) look prudent, improving the policy test score for the country.
• We also increased our local currency exposure in Chile, Uganda, and Kazakhstan. Chile’s presidential race is shaping up well for the right/center-right parties, which should improve the policy trajectory. Chile might be vulnerable to sustained drops in the price of copper, but the growth outlook is getting better, and the central bank is not in a hurry to extend its easing cycle. These factors improve the policy test score for the country. Uganda’s valuations look attractive, albeit we keep an eye on the pace of fiscal consolidation. The Kazakh currency can benefit from a potential ceasefire in Ukraine, the central bank remains hawkish, tightening more than expected to lower inflation pressures. In terms of our investment process, this strengthened the policy and technical test scores for Kazakhstan.
• Finally, we increased our hard currency sovereign exposure in Cote d’Ivoire and Gabon. Cote d’Ivoire’s new Eurobond was in line with the government’s earlier guidance, and it was attractively priced vs. the existing bonds, as well as against the improving macroeconomic backdrop and the on-going reform effort, which improved the technical and policy test scores for the country. Gabon is in the middle of the election cycle, but the transitional president maintains communications with the IMF (supporting the country’s policy test score) and the country’s near-term external financing needs are covered.
• We reduced our hard currency exposure in the United Arab Emirates and Qatar. Both countries have tight spreads vs. U.S. Treasuries, which can be a disadvantage during risk-off periods. In terms of our investment process, the latest developments worsened the technical test scores for the United Arab Emirates and Qatar.
• We also reduced our local currency exposure in South Africa. South Africa’s Q2 could be quite noisy. The budget approval timeline (which looks bumpier than usual under the coalition government - a new political arrangement with very steep learning curves for all coalition partners), a risk of financial sanctions against individuals, and the ANC’s annual congress can overshadow numerous structural improvements that should strengthen South Africa’s growth outlook. In terms of our investment process, this weakened the economic and policy test scores for the country.
• Finally, we reduced our hard currency exposure in Nigeria and Angola. In Nigeria, sovereign bond valuations no longer fully reflect global risks and uncertainties (including the price of oil), which worsened the technical test score for the country. In the similar vein, Angola’s spread duration risks are underappreciated by the market, lower oil prices can affect both the budget and the external balance – in addition to the impact of global uncertainties on more vulnerable frontier credits like Angola. In terms of our investment process, this worsened the technical test score for the country.

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