Van Eck Global - Since 1955

Unconstrained Emerging Markets Bond FundEMBAX

  • Daily Price   as of 08/27/2014

    NAV DAILY CHANGE
    $9.01  $0.02 / +0.2%
  • Class A Details: EMBAX

    INCEPTION DATE GROSS/NET EXPENSES1
    07/09/12 1.42%/1.25%
  • Monthly Commentary: July 2014

    Angel Falls

     By: Eric Fine, Portfolio Manager  

    The Fund’s biggest winners were India, Argentina, Brazil, and Vietnam, all in hard-currency. The Fund’s biggest losers were positions in Brazil, Mexico, and Angola.  

    Our basic stance remains, with one new risk from U.S. high-yield that we are accommodating, as well as one declining risk from U.S. duration that we are also accommodating. To reiterate the basics that best summarize our portfolio, we continue to prefer hard-currency over local-currency, want no investments with Russia-Ukraine-related risk, and believe that a barbell of high- and low-yielders best describes the current results of our investment process.

    One new risk we are in the process of seeking to accommodate is that from the ongoing exodus from U.S. high-yield funds – what are we doing about it? Whether due to ongoing concerns about duration, concerns about liquidity, pockets of economic weakness, and/or a retrenchment after a long period of growing ownership, high-yield weakness is a new fact concerning the market. Our response has been to examine the portfolio through this lens. Specifically, we have looked at emerging markets bonds that have high ownership on the part of U.S. high-yield and high-grade funds. Unless there are specific catalysts or mitigating factors, these types of investments are being reduced and/or eliminated. In terms of our formal process, this falls under the category of getting a lesser score for “correlation” risk – we saw some bonds as vulnerable to high correlation with a weakening high-yield market.

    A potentially fading risk is generalized concern about duration – what are we doing about that? The bullish case for U.S. Treasuries is the European rates curve.

    Ten-year German Bunds are approximately 1% in Euros compared to approximately 2.4% in U.S. dollars for the 10-year Treasury, which is a major anchor for the U.S. curve. This anchor shows no sign of lifting soon, due to continued downside growth surprises and risks in the Euro area. For the U.S., although it is clearly the growth leader among the U.S./Eurozone/Japan economies, there are significant mitigating factors. Most importantly, growing geopolitical risk from an escalating conflict between the U.S. and Russia provides a risk-off bid to U.S. Treasury duration. Our summary view is that the U.S. long-end rates could be anchored, even if front-end rates may rise.

    Everyone is talking about Argentina, and it remains a key holding (and therefore risk) in our portfolio. But let us start with some perspective – despite its recent default and the media focus, Argentina has been one of our best performers since the start of this year. First, most defaults are characterized by a debtor unwilling and/or unable to pay. This is not the case with Argentina, which is being prevented by U.S. court rulings from paying one series of bonds. Second, Argentina’s argument is that it cannot negotiate (as per the U.S. court’s orders), until the end of this year when a bond clause allows the government to do so. If this is the case, one is basically looking at the risk of a missed coupon for the remainder of the year, but not an ultimate unwillingness or inability to pay situation. Third, we believe that all candidates in next year’s elections want to resolve the debt issue. Fourth, opening Argentina up to financing could be transformative, as a small amount of market access should take their credit spread to a different state. Fifth, based on the country’s fundamentals, our framework indicates the credit spread should be substantially lower. We see Argentina as a significant idiosyncratic investment with what could be substantial upside over the next six months, for the reasons noted above. However we recognize it could be a bumpy road.

    Read full July Commentary >>  

  • Video Viewpoint

    Emerging Markets in Focus: Russia

    Eric Fine
    Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Strategy

    View now »


    Global Research: Highlights from Eastern Europe

    Eric Fine and Natalia Gurushina
    Portfolio Manager and Economist, Van Eck Unconstrained Emerging Markets Bond Investment Team


    "Even though large parts of the region benefit from growth recovery in the euro zone, especially Germany, there are two large economies, Russia and Turkey, where the growth dynamics remain extremely anemic."


    View now »


    Global Research: Poland

    Eric Fine and Natalia Gurushina
    Portfolio Manager and Economist, Van Eck Unconstrained Emerging Markets Bond Investment Team


    "I think Poland is uniquely positioned to benefit from Germany's rebound... My key concern about Poland, however, is potential exposure to change in sentiment from political risks in Ukraine."


    View now »


    Global Research: Hungary

    Eric Fine and Natalia Gurushina
    Portfolio Manager and Economist, Van Eck Unconstrained Emerging Markets Bond Investment Team


    "The shift in my outlook for Hungary has been fairly dramatic… the government, together with the central bank implemented fairly aggressive and large-scale funding for lending programs but I have yet to see the results in terms of stronger growth in Hungary."


    View now »


    Global Research: Turkey

    Eric Fine and Natalia Gurushina
    Portfolio Manager and Economist, Van Eck Unconstrained Emerging Markets Bond Investment Team


    "The macroeconomic fundamentals in Turkey are getting worse. Turkey is vulnerable, but it’s always been vulnerable. It’s never had enough reserves. Its real interest rates have never been that satisfying. But the political context is the worst I’ve seen in twenty years."


    View now »


    Global Research: Romania

    Eric Fine and Natalia Gurushina
    Portfolio Manager and Economist, Van Eck Unconstrained Emerging Markets Bond Investment Team


    "My outlook on Romania did not necessarily change for the negative but certain red flags were raised during my trip."


    View now »


    Global Research: Ukraine

    Eric Fine and Natalia Gurushina
    Portfolio Manager and Economist, Van Eck Unconstrained Emerging Markets Bond Investment Team


    "The scenario of civil war and perhaps a civil war that has broader implications for the region is a scenario we have to think about. It's hard to assign probabilities to that, but the market seems to be saying it's a zero and I think zero is definitely the wrong answer."


    View now »


    How Will Tapering Affect EM Bonds?

    Eric Fine
    Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Fund


    “I don't have a blanket answer that says the taper is just not an issue for EM, but I do think it's been priced in generally. I think some countries have been able to react, and if tapering's happening because of good final demand, because economies are growing, then that's a high-quality problem for EM countries.”


    View now »


    Global Research: Indonesia, Malaysia, Philippines, and Vietnam

    Eric Fine
    Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Fund


    “A big attraction for Japanese and Korean investments in China is low wages. There are substantial and continuous wage pressures in China and that brings a big challenge for existing investments. The countries that I visited are all seeing substantial interest and in many cases are already seeing inflows from Japan.”


    View now »


    Why Unconstrained Approach to EM Bond Investing?

    Eric Fine
    Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Fund


    “In one word, the value of an unconstrained approach to emerging markets bond portfolio investing is ‘flexibility’. The market changed a lot in the past 20 years. At first, it was only hard currency bonds. Then came hard currency corporates followed by local currency sovereigns. Nowadays, local currency corporates are becoming more prominent. Having an unconstrained mandate is key to optimizing the portfolio using all four sub asset classes.”


    View now »


  • Emerging Opportunities

    Seedling

    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.

  • Important Disclosure 

    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.

    1Van Eck Associates Corporation (the “Adviser”) has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding 1.25% for Class A, 1.95% for Class C, 0.95% for Class I, and 1.00% for Class Y of the Fund’s average daily net assets per year until May 1, 2015. During such time, the expense limitation is expected to continue until the Board of Trustees acts to discontinue all or a portion of such expense limitation.

    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 

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