Van Eck Global - Since 1955

Unconstrained Emerging Markets Bond FundEMBCX

  • Daily Price   as of 11/28/2014

    NAV DAILY CHANGE
    $8.46  $-0.03 / -0.4%
  • Class C Details: EMBCX

    INCEPTION DATE GROSS/NET EXPENSES1
    07/09/12 2.59%/1.95%
  • Monthly Commentary: October 2014

    Angel Falls

     By: Eric Fine, Portfolio Manager  

    The Fund’s biggest winners were Argentina, Venezuela (due to bond selection), and Mexico, all in hard-currency. The Fund’s biggest losers were Brazil, Peru, and Colombia.  

    There were no changes in the broad themes that characterize our portfolio. We continue to prefer hard-currency over local-currency denominated bonds, have no Russia-/Ukraine-related exposure, and like a combination of idiosyncratic high- and low-yielders. We remain comfortable with duration and continue to limit our corporate exposure. More specifically, we have increased our selective exposure to duration in steep credit curves of high-rated and most liquid sovereigns, while further reducing our corporate exposure.

    The weak growth outlook in emerging markets and emerging markets debt reinforces our view of owning hard-currency debt over local-currency debt (with one exception – China). Emerging markets growth currently remains anemic – the upward move in emerging markets’ Purchasing Managers Indices (PMIs) has faded away. The Bank of Japan’s bold policy move and a weaker Yen might encourage central banks in emerging markets to weaken their currencies to maintain competitiveness.

    Further, our sense is that institutional investors have finally adopted the view that emerging markets have excellent fundamental debt characteristics and that perhaps the execution of the view has been too narrowly focused on either hard- or local-only mandates. We continue to argue that an unconstrained approach is appropriate for the asset class, and that institutions should seek managers who can optimize the different risk/return characteristics of hard-currency sovereign debt, hard-currency corporate debt, and local-currency sovereign debt.

    We continue to limit our exposure to corporates. We are concerned that vague “worries about liquidity” might translate into a full-blown “liquidity illusion” scare – both are likely to find their best expression in emerging markets corporates. Accordingly, as part of our investment process, we are assigning an increasing number of failing grades in our “vulnerability” test, which measures short-term external financing pressures for corporates. Moreover, we see the risk of emerging markets corporates correlating with a weakening U.S. corporate market as global growth is challenged; we have also assigned failing grades in our “correlation” test.

    We remain comfortable with duration for now. The recent U.S. dollar rally has been tantamount to monetary tightening and most economic forecasting models show that the U.S. economy begins to reflect this with a one-year lag. Related to this, the bid to the U.S. dollar is also the result of low yields in German Bunds and Japanese Government Bonds, which, in our view, anchor Treasury yields. The Federal Reserve may need to hike to have (or pretend to have) some powder dry for any coming downturn, though longer dated Treasuries could rally in that event.

    Read full October Commentary >>  

  • Video Viewpoint

    Van Eck Rapid Fire: Emerging Markets Bonds Roundtable

    Eric Fine and Fran Rodilosso
    Portfolio Managers

    "The Hong Kong protests are not likely to impact credit markets in any direct sense. We do think, however, that these types of protests are likely to increase around the world....atomization is happening and we're going to see more of this in Europe and perhaps in other countries."



    View now »


    Emerging Markets in Focus: Argentina Bond Default

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

    "Our starting point is comparing countries' fundamentals to what premium you're getting. Are you getting paid for that risk? Looking at fundamentals alone and putting the important technical default issues to the side, one finds that Argentina is cheap. It's paying spreads that are too high for its fundamentals."



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    Emerging Markets in Focus: Russia

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

    "The Russian economy was already in bad shape when it entered this crisis. It was saddled with high inflation, low growth, and to a large extent, the country's just a gas station. It's very dependent on one product that is central to the economy."



    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."



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    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."



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    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."



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    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."



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    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."



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    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."



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    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."



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  • 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.

  • Additional Resources

     
  • 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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