Though it doesn’t get the spotlight that equities do, the bond markets are full of opportunities. One area of opportunity exists in the emerging markets space.
2019 thus far has been marked by strength in U.S. equities, which is translating to strength abroad as emerging markets (EM) are also gaining after a tumultuous 2018. While more investors are looking to add EM equities to their portfolios, they shouldn’t forget about EM bond exposure via exchange-traded funds (ETFs) like the VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC).
Of course, a major trigger event looming whether it’s for equities or bonds, is the trade negotiations between the U.S. and China. If a permanent trade deal materializes, it could spur an increased interest in EM assets.
While the majority of investors might have been driven away by the red prices in emerging markets during much of 2018, investors are beginning to look at EM opportunities as substantial markdowns, especially if trade negotiations between the U.S. and China result into something materially positive. From a fundamental standpoint, EM assets are prime value plays as capital inflows continue.
EMLC seeks to replicate the price and yield performance of the J.P. Morgan GBI-EM Global Core Index. The index is comprised of bonds issued by emerging market governments and denominated in the local currency of the issuer.
Additionally, EMLC may concentrate its investments in a particular industry or group of industries to the extent that the index also concentrates in a particular industry or group of industries. The strength in the EM space thus far in 2019 is evident with EMLC up 2.10 percent after declining 7.57 percent in 2018.
With investors confidence returning, so is a penchant for yield–something that can also be had via emerging market bonds via EMLC. Bond markets overseas could provide more competitive yields when compares to those of the U.S. where credit risk in a late market cycle could pose a concern.
In the video below, PIMCO’s Jerome Schneider breaks down how to play the bond market with CNBC’s Bob Pisani.
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