Emerging markets bonds denominated in local currencies were flat overall during the first quarter as modest gains in local terms were largely offset by weaker currencies versus the U.S. dollar. It was a relatively calm quarter for our asset class. Slower economic growth, reduced inflationary pressures, and accommodative monetary policies resulted in muted but positive performance. However, renewed instability in the eurozone related to an inconclusive Italian election and financial distress in Cyprus weighed on risk sentiment and currency valuations. Investor interest in local currency bonds remained strong, however, amid lower inflation expectations and an ongoing search for more attractive yields.
The Emerging Markets Local Currency Bond Fund returned −0.08% in the quarter compared with −0.12% for the J.P. Morgan GBI - EM Global Diversified. For the 12 months ended March 31, 2013, the fund returned 7.96% versus 7.68% for the J.P. Morgan GBI - EM Global Diversified. The fund's 1-year and Since Inception (05/26/2011) average annual total returns were 7.96% and 4.13%, respectively, as of March 31, 2013. The fund's expense ratio was 2.03% as of its fiscal year ended December 31, 2011.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Emerging Markets Local Currency Bond Fund charges a 2%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
We continue to believe in the long-term appreciation potential of select Asian currencies. We slightly increased our off-benchmark exposure to the South Korean won and maintained off-benchmark positions in the Sri Lankan rupee and Indian rupee. We increased our exposure to the Thai baht and continue to hold an overweight allocation to the Malaysian ringgit. We are overall underweight in Latin America but continue to like the Mexican peso and Brazilian real. We recently opened an overweight allocation to the Chilean peso due to supportive fundamentals. In terms of country selection, we opened an off-benchmark allocation to Chinese offshore bonds and maintained overweight exposure to Philippine and Sri Lankan bonds on attractive yields. We continue to maintain underweight allocations to Hungary given concerns about the direction and quality of the country's policymaking. We also maintain an underweight allocation to Poland, where growth appears to be stalling.
Emerging markets local currency bonds should continue to benefit from strong inflows in 2013. Investors are not only driven by a search for yield, but, also importantly, by a broader structural trend toward more emerging markets exposure in investment portfolios. Credit fundamentals and economic growth potential in emerging markets countries remain favorable relative to many highly indebted developed countries. Lower debt burdens provide policymakers in developing countries a broader array of tools to stimulate growth than their developed market peers. Accommodative monetary policies in developed markets are likely to put further downward pressure on their currencies and yields, prompting investors to seek yield and diversification benefits in locally denominated emerging markets debt.