Market Vectors’ Fran Rodilosso on the Emerging Market Debt Sell-Off: Hard Currency Outperformed Debt Issued in Local Currency

NEW YORK--()--The start of 2014 has been a rough one for emerging market (EM) debt, with debt issued in local currencies bearing the brunt of the decline, according to Fran Rodilosso, fixed income portfolio manager at Market Vectors ETFs.

“Year to date, the severity of the sell-off has varied by country and by the type of issuance, with hard currency EM debt generally holding much of its value so far this year, helped by the rally in Treasuries,” Mr. Rodilosso said. “On the other hand, local currency denominated issues appear to have been the victims of several forces: ‘risk-off’ related outflows, adverse political events, and/or worsening near-term economic fundamentals. Those countries with larger current account deficits have been particularly hard hit.”

Mr. Rodilosso points to the performance of the Market Vectors EM Aggregate Bond Index (MVEMAG), which underlies the Market Vectors Emerging Markets Aggregate Bond ETF (NYSE Arca: EMAG), during the first month of the year as a possible means of shedding some light on what has happened so far in 2014. Hard currency sovereign debt did poorly in 2013, with returns hurt by the fact that it was the component of the EM debt universe with the longest duration. That same characteristic supported hard currency sovereigns during January as Treasuries rallied. Nonetheless, hard currency sovereign debt declined about 1.6% for the month, weighed down by Argentina, Ukraine, and Venezuela.

“I believe the corporate debt market may potentially lead EM fixed income this year, because there generally is a more diversified group of borrowers in this market, many of which appear to be in a better position than even their own governments to weather the current storms,” Mr. Rodilosso noted. He added that the corporate hard currency debt component of MVEMAG was slightly down 0.18 percent in January, while local currency debt overall was down more than 4 percent in January as every currency weakened versus the dollar, and most local interest rate curves pushed higher.

Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, including 17 years covering emerging markets. In addition to EMAG, among the Market Vectors ETFs under his watch are Investment Grade Floating Rate ETF (NYSE Arca: FLTR®), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC®), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM®), International High Yield Bond ETF (NYSE Arca: IHY®), Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL®), Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHY), and Renminbi Bond ETF (NYSE Arca: CHLC®). As of December 31, 2013 the total assets for these ETFs amounted to approximately $1.4 billion.

About Market Vectors ETFs

Market Vectors exchange-traded products have been offered since 2006 and span many asset classes, including equities, fixed income (municipal and international bonds) and currency markets. The Market Vectors family totaled $22.1 billion in assets under management, making it the seventh largest ETP family in the U.S. and 10th largest worldwide as of December 31, 2013.

Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals including gold, and other alternative asset classes.

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There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. The Fund’s underlying securities may be subject to call risk, which may result in the Fund having to reinvest the proceeds at lower interest rates, resulting in a decline in the Fund’s income.

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Release Summary

Market Vectors fixed income expert Fran Rodilosso weighs in on the Emerging Market sell-off and discusses how hard currency debt has been outperforming debt issued in local currency.


MacMillan Communications
Mike MacMillan/Chris Sullivan, 212-473-4442