Storm Winds Change | Nasdaq

By Eric Fein
Portfolio Manager, Fixed Income Emerging Markets

We believe recessionary risks are mounting, with a European recession, oil embargo risks and China’s zero-Covid uncertainties contributing to US Federal Reserve (Fed) rate hike headwinds. Fed action could bring stability to long-dated US Treasuries. However, risks to growth may not be fully priced into the market, which complicates matters and prompts us to consider extending low-beta spread duration and reducing some EM foreign currencies.

The central banks of the emerging countries have anticipated rate hikes by the Fed. They’re usually more aggressive, but in this latest installment, they’re also more preemptive. They entered the Russia/Ukraine crisis having already tightened monetary policy. However, risks to growth abound, including China’s policy stimulus that could trump economic stimulus, contributing to risks of a slowdown.

The Emerging Markets Bond Fund (the “Fund”) outperformed its benchmark in April, primarily due to the Fund not holding any Russian securities and secondly to the Fund’s very low duration. For detailed information on fund performance and the prospects for emerging market debt, go to Download comment.

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Originally published by VanEck on May 23, 2022.

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IMPORTANT DISCLOSURES

This is neither an offer to buy or sell nor a solicitation of an offer to buy or sell any of the securities mentioned herein. The information presented does not contain any personalized investment, financial, legal or tax advice. Certain statements contained herein may constitute forecasts, projections and other forward-looking statements that do not reflect actual results. Information provided by third party sources is believed to be reliable and has not been independently verified for accuracy or completeness and cannot be guaranteed. All opinions, forecasts, projections and forward-looking statements contained herein are as of the date of this release 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, reflecting how a bond’s price changes when the yield changes. This duration measure is appropriate for bonds with embedded options. Quantitative easing by a central bank increases the money supply by conducting open market operations to encourage increased lending and liquidity. Monetary easing is an economic tool used by a central bank to lower interest rates and increase the money supply to stimulate economic activity. Correlation is a statistical measure of how two variables move in relation to each other. Liquidity illusion refers to the effect that an independent variable might have on a security’s liquidity as that variable fluctuates over time. A holdout problem in the fixed income asset class occurs when a bond issuer country or company defaults or is about to default and makes an exchange offer to try to restructure its debt held by existing bond investors. Carry is the benefit or cost of owning an asset.

Investing involves risk, including loss of capital. You can lose money by investing in the fund. Any investment in the Fund should 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 exchange transactions, foreign securities, hedging, other investment companies, Latin American issuers, management, market, non-diversification , operational, portfolio turnover, sector and sovereign risk. Investing in securities denominated and/or domiciled in foreign currencies may involve increased risk due to currency fluctuations, economic and political risks, which may be heightened in emerging markets. Because the Fund may invest in securities denominated in foreign currencies and some of the Fund’s income is denominated in foreign currencies, fluctuations in exchange rates may adversely affect the Fund’s returns. Derivatives can involve certain costs and risks such as liquidity, interest rates and the risk that a position cannot be closed out at the most opportune time. The Fund may also be exposed to risks associated with non-investment grade securities.

Investors should carefully consider the investment objective, risks, charges and expenses of the Fund’s investment entity before investing. Bonds and mutual funds will fall in value as interest rates rise. The prospectus and summary prospectus contain this and other information. Please read them carefully before investing. Please call 800.826.2333 or visit vaneck.com for performance information current to the most recent month end, a free prospectus and a prospectus summary.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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