Emerging markets corporate debt generated positive first-quarter returns as credit spreads narrowed (credit spreads measure the additional yield that investors demand as compensation for holding a bond with credit risk versus a similar-maturity security with minimal credit risk). After falling by nearly 40% in the fourth quarter of 2014, oil prices stabilized in the first quarter, which provided some support for energy-related bond issuers in developing markets. Investment-grade emerging markets corporates performed roughly the same as high yield bonds from emerging markets issuers. In terms of regional performance, emerging European corporates generated the strongest returns as tensions between Russia and Ukraine eased and Russian corporate bonds rallied.
The Emerging Markets Corporate Bond Fund returned 1.11% in the quarter compared with 2.36% for the J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified. For the 12 months ended March 31, 2015, the fund returned 1.67% versus 4.52% for the J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified. The fund's 1-year and Since Inception (05/24/2012) average annual total returns were 1.67% and 5.02%, respectively, as of March 31, 2015. The fund's expense ratio was 1.45% as of its fiscal year ended December 31, 2013.
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 Corporate 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.
The fund's holdings focus on the beneficiaries of domestic demand, particularly in the consumer, industrials, and real estate sectors. In contrast, the portfolio is underweight the financial services sector relative to the benchmark as a result of a less attractive risk/reward trade-off in that segment. We selectively added to our Brazil exposure because of the strong relative value available on some Brazilian corporates as well as the potential for government reforms in that country. We tend to find more attractive opportunities in bonds with BBB, BB, and B credit ratings because of the lower market efficiency in those credit quality categories. In particular, we increased the portfolio's BB rated holdings as a result of compelling relative value opportunities in that credit quality segment.
Despite an increase in volatility in some financial markets and commodities prices, healthy consumption trends in developing countries continue to anchor corporate fundamentals. We believe that some country-specific developments, such as the corruption scandal affecting Petrobras, Brazil's huge state-run oil company, will continue, although they are likely to remain isolated with limited risk of contagion. Emerging markets corporate bonds should receive support from global investors building their allocations to the asset class given their attractive valuations relative to developed markets corporates. With the Federal Reserve moving closer to tightening monetary policy, there will likely be some volatility that creates attractive entry points for investors in emerging markets corporate debt.