Emerging markets corporate debt fell in the fourth quarter as credit spreads widened (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). Despite heightened volatility and the increase in credit spreads in the sector, investor sentiment toward emerging markets corporate bonds was resilient. However, investment-grade corporates from developing countries held up significantly better than high yield issues. In terms of regional performance, corporates issued in Asian and Middle Eastern emerging markets outperformed as a result of their higher credit quality, while emerging European corporate bonds lagged.
The Emerging Markets Corporate Bond Fund returned −2.26% in the quarter compared with −1.21% for the J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified. For the 12 months ended December 31, 2014, the fund returned 3.14% versus 4.96% 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 3.14% and 5.06%, respectively, as of December 31, 2014. 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, we are underweight the financial services sector relative to the benchmark given the relatively high valuations in that area. We are also underweight commodities-related sectors given expectations for oil prices to stay at or near their current low levels in the near term. The fund is underweight Asia due to the region's high valuations as well as the Middle East as a result of issuers' lack of transparency. We tend to find more attractive opportunities in bonds with BBB and BB credit ratings because of the lower market efficiency and better valuations in those credit-quality categories.
Despite a slowdown in the growth outlooks for some emerging markets, healthy consumption trends in developing countries continue to anchor corporate fundamentals. We believe that some country-specific developments, such as the tensions between Russia and the West over Ukraine and the rapid deterioration in Venezuela's fiscal condition as a result of the steep decline in oil prices, 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 the attractive valuations in the sector relative to developed markets corporates.