Emerging markets corporate bonds posted positive returns in the second quarter, making the asset class one of the top performers within fixed income for the first half of 2015. High yield corporate bonds issued by companies in developing countries rebounded sharply from their decline at the beginning of the year to outperform investment-grade emerging markets corporates in the second quarter by a considerable margin. The transportation and metals and mining sectors produced the strongest returns, while infrastructure and industrials were the only declining segments. In terms of regional performance, bonds issued by companies in emerging Europe generated the strongest results, and Africa also produced good returns.
The Emerging Markets Corporate Bond Fund returned 1.68% in the quarter compared with 1.32% for the J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified. For the 12 months ended June 30, 2015, the fund returned −1.14% versus 2.35% 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 −1.14% and 5.17%, respectively, as of June 30, 2015. The fund's expense ratio was 1.21% as of its fiscal year ended December 31, 2014.
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. From a regional perspective, we favor bonds issued by companies in countries that are making structural reforms and improving policymaking, including India, Brazil, China, and Mexico. From a credit quality perspective, bonds rated BBB and BB appear to offer the most attractive relative value as well as more opportunities to take advantage of pricing inefficiencies. We are relatively defensive within the portfolio's high yield allocation, emphasizing BB rated issuers over those with B or lower ratings given our expectations for deteriorating credit characteristics for companies in the lower-rated noninvestment-grade segments.
In the near term, the impending start of a Federal Reserve tightening cycle may trigger elevated volatility, but that could provide an attractive entry point for emerging markets debt investors given our expectation for a gradual pace of Fed rate increases. Our long-term outlook for emerging markets corporate debt remains positive and relative valuations are appealing, although they are not as attractive as at the beginning of 2015. The asset class should continue to receive support from global investors building their allocations to emerging markets corporates given these compelling valuations relative to other fixed income sectors. A key variable for emerging markets corporate bonds going forward is monetary policy in China, where we expect a controlled deceleration in economic activity.