The Federal Reserve's September decision to delay tapering boosted demand for emerging markets debt, as the higher yields offered by the asset class helped it rebound to some degree from its summer sell-off. Emerging markets corporate bonds produced stronger returns than emerging markets sovereign debt. Several emerging markets currencies also regained some lost ground, but the currencies of countries with large current account deficits, such as South Africa, Turkey, and Brazil, continued to struggle.
The Emerging Markets Local Currency Bond Fund returned −1.60% in the quarter compared with −1.54% for the J.P. Morgan GBI - EM Global Diversified. For the 12 months ended December 31, 2013, the fund returned −10.18% versus −8.98% 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 −10.18% and −1.22%, respectively, as of December 31, 2013. The fund's expense ratio was 1.65% as of its fiscal year ended December 31, 2012.
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 favor Latin American bonds as a result of their attractive nominal and inflation-adjusted yields. On the other hand, we are underweight to Asia and, to a lesser extent, the Europe, Middle East, and Africa (EMEA) region. In terms of currency positioning, we have holdings in some emerging markets currencies that have been volatile where we believe that prices compensate us for potential volatility going forward. We also are overweight to currencies of developing countries that we consider to have a lower risk profile, such as Mexico. We have funded these positions with underweights to developed market currencies, such as the Japanese yen and the euro, because we believe that policymakers in developed markets do not want significantly stronger currencies.
We believe some caution over the near term is warranted given that volatility may reemerge as the Fed reduces its monetary accommodation. However, over the medium to long term, we believe that the favorable yields, enticing growth potential, and diversification benefits of emerging markets debt will support investor inflows. Accordingly, near-term volatility may provide opportunities to build positions. While some emerging markets currencies will likely continue to depreciate against the dollar as countries struggle to make needed economic reforms, in the longer term we think that currencies of developing nations will benefit from the better fiscal conditions, higher economic growth levels, and positive inflation-adjusted interest rates of emerging countries relative to developed markets.