Emerging markets corporate bonds produced positive total returns in the second quarter. An increase in commodity prices, accommodative central bank actions, signs of economic stability, and promising political developments supported investor sentiment. Very low yields in developed markets boosted investor demand for higher-yielding assets, benefiting emerging markets bonds. A more dovish stance from the Federal Reserve also helped foster support for the asset class. Emerging markets corporate debt from the metals and mining sector performed particularly well as commodity prices increased. The price of Brent crude oil, the worldwide benchmark, climbed above $50 per barrel after starting the quarter at about $36.
The Emerging Markets Corporate Bond Fund returned 4.23% in the quarter compared with 3.77% for the J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified. For the 12 months ended June 30, 2016, the fund returned 5.44% versus 5.30% 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 5.44% and 5.24%, respectively, as of June 30, 2016. The fund's expense ratio was 1.19% as of its fiscal year ended December 31, 2015.
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.
We focus on bonds issued by companies in nations with positive momentum toward making structural reforms, including Indonesia, Mexico, and Argentina, that support long-term growth. In terms of sector allocations, the fund's holdings concentrate on areas driven by domestic demand, particularly the consumer, industrial, and technology, media, and telecommunication sectors. Conversely, many financials sector bonds appear expensive, and the fund is underweight the sector relative to the benchmark. The portfolio is also underweight commodities-related industries, including metals and mining and oil and gas, as a result of our cautious outlook for commodity prices.
Our long-term outlook for emerging markets corporate debt remains positive, and the asset class should continue to receive support from global investors building their allocations. The recent uncertainty in the political institutions of developed markets, highlighted by the turmoil in the UK stemming from its Brexit vote, reinforces the relative attractiveness of emerging markets. A key variable for emerging markets corporate bonds going forward is the economic slowdown in China, where supportive policymaker actions have helped improve investor sentiment. We expect China's government to be able to control the country's deceleration in economic activity.