Emerging Markets Local Currency Bond Fund – Ingenuity Complex LLC.

Emerging Markets Local Currency Bond Fund

Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author, but not necessarily those of VanEck. EM local currency instruments have had low historical correlations with other fixed income assets, such as U.S. Treasuries, and may help enhance overall portfolio diversification.

Active management with daily monitoring of economic data local news and macro changes to adhere to our buy/sell discipline. Our emerging market investment professionals have been working together for over 20 years and have developed a deep understanding of the market complexities in EMD, having first invested in 1990. The maturity breakdown above is based on Weighted Average Life .

Charles is a nationally recognized capital markets specialist and educator with over 30 years of experience developing in-depth training programs for burgeoning financial professionals. Charles has taught at a number of institutions including Goldman Sachs, Morgan Stanley, Societe Generale, and many more. Investopedia requires writers to use primary sources to support their work.

3 Looking forward, we believe investors should consider the current makeup of the index, which has been relatively resilient and may benefit from several tailwinds. Russian bonds following the invasion of Ukraine, and an additional -2% of the year’s negative brokerage activities return has been driven by Eastern European countries most impacted by the conflict. This material is authorized for use only when preceded or accompanied by the current PIMCO funds prospectus or summary prospectus, if available and the current fund card.

Sustainability Characteristics

ICE BofA US Broad Market Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market, including US Treasury, quasi-government, corporate, securitized and collateralized securities. The expert team draws on our time-tested investment process, which combines macroeconomic forecasting with rigorous bottom-up credit research. Conversely, the likely worst case scenario for EM local currency total returns would be if inflation proved sticky in EM at quite elevated levels, while inflation fell to more ‘normal’ levels in DM. At the same time, although yields may provide some carry protection, we could also expect some nominal depreciation of EM currencies. Firstly let’s consider the likely best and worst case inflation scenarios over a three-year horizon.

emerging market local currency bonds

The EM local currency debt universe is a huge, deep and diversified market that no global investor can afford to ignore. Of course, this does not mean investors should buy them just ‘because it’s big’. Rather, the asset class should be seen as a valuable cornerstone offering a volatile – but diversifiable – high return in almost every portfolio. J.P. Morgan GBI-EM Global Core Index tracks bonds issued by emerging markets governments and denominated in the local currency of the issuer. Emerging markets central banks were ahead of developed markets in hiking rates, and we believe EM local currency bonds may offer yield and diversification potential as U.S. rates rise. Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing.


The types of fixed income instruments, in addition to Brady bonds and local market bonds, include eurobonds and Yankee bonds. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting the iShares ETF and BlackRock Mutual Fund prospectus pages. While all of the above “endless excuses” may be relevant, they rarely apply to the same countries at the same time for the same reasons. Cheap oil prices can be a serious problem for Colombia’s trade balance, or for the federal budget in Mexico, but it is a gift for the fiscal and external accounts of China, India or South Korea. A vigorous US economy can translate into a strong dollar and, potentially, weakens EM currencies.

emerging market local currency bonds

The result has been positive real rates of interest that have provided some support to currencies. Bonds that are denominated in local currencies rather than U.S. dollars are the second type of emerging market debt. You’ll have to convert dollars to foreign currency in this case prior to buying the bond.

Emerging Markets Debt Local Currency

Twin deficits are growing alarmingly, whilst interest rate differentials no longer support the US dollar vs all comers. Global reflation will also positively affect the global trade momentum, which most emerging economies benefit from. For their part, emerging market currencies reflect the real demand and supply of real trade and financial etoro review flows, and they pay you a positive yield on top of it. So, if investors need a dollar hedge in the portfolio, or if they simply expect the dollar to be weak or to stay stable, EM local currency bonds are the no-nonsense option that will allow them to meet their investment objectives, yet work in line with their constraints.

In our view, a positive scenario of inflation peaking in both is coming within sight, but the key risk factor is timing. Beyond the broader asset class level, however, there are notable country-level variations in both inflation and valuations, which can matter greatly for returns, underscoring the importance of careful selection. This strategy invests in local currency treasury and government-related emerging market bonds. Portfolios may be opportunistically allocated to emerging market corporate credit and hard currency issues. The strategy is typically benchmarked to the JPMorgan Global Bond Index – Emerging Markets Global Diversified. We examine the dynamics of emerging market local currency government bond yields for the last decade and a half as well as for three different phases (January 2000–December 2007, January 2008–April 2013, and since May 2013).

Further, although the Fed is at the beginning of what is expected to be a prolonged hiking cycle, historically higher U.S. rates have not been a headwind for investors once the U.S. hiking cycle actually begins. As shown in the chart below, the U.S. dollar appreciated in the year prior to the date of the first rate increase in three of the last five hiking cycles . However, the dollar actually tended to be flat or weaker in the months following the first hike. If the same pattern repeats, emerging markets local currency bond investors may benefit from currency appreciation (or at least a pause in U.S. dollar strength) while earning higher levels of carry.

However the key uncertainty regards timing, and the longer that the rolling over of inflation is delayed, then in the interim yields could keep rising for a while longer. As for volatility, let us say it attracts way more attention than it deserves, because what people really care about is drawdown, rather than volatility. And, by the way, what is volatility without knowing what the correlation is with the other assets in your portfolio.

From an investment perspective, we are inclined to prefer countries with attractive real yields, and where there’s little evidence of demand-driven inflation, such as high wage growth. An example of this would be Brazil, which as with other commodity exporters, is also benefitting from strengthening terms of trade and an improving current account position. On the other hand, we feel optically high-yielding countries, where a lot of inflation is also demand-driven, such as in many central European countries, options as a strategic investment review warrant greater caution at the present time. Between these best and worst cases, there are various intermediate scenarios. A still-good scenario for local currency EMD would be inflation peaking everywhere but falling faster in EM compared to DM, allowing past rate rises to be unwound more quickly in the former. There is no assurance that any fund, including any fund that has experienced high or unusual performance for one or more periods, will experience similar levels of performance in the future.

This becomes a bigger factor during times when you’re looking to avoid risk. It makes sense to expect that local currency funds will underperform their dollar-denominated counterparts. Dollar-based debt may be the better option in times of uncertainty for new investors in the asset class or for those with lower risk tolerance.

If the Fund invests in any underlying fund, certain portfolio information, including sustainability characteristics and business-involvement metrics, provided for the Fund may include information (on a look-through basis) of such underlying fund, to the extent available. The calculator provides clients with an indication of an ETF’s yield and duration for a given market price. The ACF Yield is the discount rate that equates the ETF’s aggregate cash flows (i.e., the sum of the cash flows of the ETF’s holdings) to a given ETF price. The cash flows are based on the yield to worst methodology in which a bond’s cash flows are assumed to occur at the call date or maturity, whichever results in the lowest yield for that bond holding. For a given ETF price, this calculator will estimate the corresponding ACF Yield and spread to the relevant government reference security yield.

Even so, we think the asset class valuation case is understated given important compositional changes in the index over time. Firstly, in the past, relatively bigger countries were higher yielders, but now many of the bigger countries , are among the lower yielders. Secondly, the index weight of two traditionally more volatile countries, Russia and Turkey, has reduced significantly, falling from a combined 20% of the index in May 2013 to a little over 1% now. High inflation is exactly what investors in inflation-linked bonds hope for when an emerging economy is not completely dollarized. Duration is a measure of a portfolio’s price sensitivity expressed in years.

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But this necessarily ignores significant variations across countries in terms of both the inflation/rates outlook and yields/valuations. For example, the inflation picture is notably distinct and less problematic at present in China. In most other regions both inflation and yields are elevated, but with important differences in the drivers. The chart below shows that the current index yield level is comfortably above the long term average of 6.5%, and in the top quartile of yields historically.

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The Fund’s investment objective is to seek high total return from current income and capital appreciation. Suppose you buy $1 million worth of Brazil’s local currency debt. But you first have to convert your dollars into the local currency.

emerging market local currency bonds

If this were a real emergency, DoubleLine would be posting news, updates, contact information, webcast or conference call information here to keep our clients updated on the situation. If you have reached out to us on an unsolicited basis from outside the United States, local data privacy regulations may not apply to the information that you provide. This material is not intended to provide investment advice or be considered a personal recommendation.

Capital Group Emerging Markets Local Currency Debt

They may be negatively correlated, improving strongly its prospective risk/return profile. Weighted Average Market Cap – The portfolio-weighted average market capitalizations of all equity securities. Absent client restrictions, allocations are consistent across all client portfolios with the same mandate type. Where bond exposure is shown, this represents the portfolio’s exposure to bonds issued by each country. Where currency exposure is shown, this represents the portfolio’s exposure to bonds, cash and forward.

What is bond credit spread?

The credit spread is the difference in yield between bonds of a similar maturity but with different credit quality. Spread is measured in basis points. Typically, it is calculated as the difference between the yield on a corporate bond and the benchmark rate.

This and other information are contained in the fund’s prospectus and summary prospectus, if available, which may be obtained by contacting your investment professional or PIMCO representative. Tap into opportunities for higher yields and currency appreciation through an actively managed portfolio of local currency-denominated emerging markets debt. The values shown for “market value,” “weight,” and “notional value” (the “calculated values”) are based off of a price provided by a third-party pricing vendor for the portfolio holding and do not reflect the impact of systematic fair valuation (“the vendor price”). The vendor price is not necessarily the price at which the Fund values the portfolio holding for the purposes of determining its net asset value (the “valuation price”). Additionally, where applicable, foreign currency exchange rates with respect to the portfolio holdings denominated in non-U.S. Currencies for the valuation price will be generally determined as of the close of business on the New York Stock Exchange, whereas for the vendor price will be generally determined as of 4 p.m.

Returns measure performance from the inception of the oldest share class to the present, so some returns predate the inception of Class C. Those returns are calculated by adjusting the Institutional returns to reflect the C shares’ different charges and expenses. Total return performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. In this podcast, Capital Group’s fixed income director and OMFIF’s economist discuss how investors could approach investing in emerging market debt, and US Federal Reserve’s policy response to the recent market volatility. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes.

Our investment approach is constructed from selecting from the broadest possible investible universe, which allows for greater sources of alpha and a greater level of diversification. None of these companies make any representation regarding the advisability of investing in the Funds. Performance shown reflects fee waivers and/or expense reimbursements by the investment advisor to the fund for some or all of the periods shown. Bonds are included in US bond indices when the securities are denominated in U.S. dollars regardless of the domicile of the issuer. Visit the 360° Evaluator tool, exclusively for advisors, to analyze investments within a portfolio context in minutes.

The calculated values may have been different if the valuation price were to have been used to calculate such values. The vendor price is as of the most recent date for which a price is available and may not necessarily be as of the date shown above. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost.

All data is from MSCI ESG Fund Ratings as of Jun 21, 2022, based on holdings as of Feb 28, 2022. As such, the fund’s sustainable characteristics may differ from MSCI ESG Fund Ratings from time to time. The value of investments and the income from them can fall as well as rise and are not guaranteed. Colombia has the most vibrant economy of Latin America with a long history of sound macroeconomic policies, leaving the country unscathed from large economic collapses and hyperinflation.

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