Moderately Rising Bond Yields May Be a Good Sign for Income Investors, Says Market Vectors' Fran Rod
Moderately Rising Bond Yields May Be a Good Sign for Income Investors, Says Market Vectors' Fran Rodilosso
NEW YORK--(BUSINESS WIRE)-- With yields on the 10-year Treasury Note recently touching two percent for the first time since April 2012, bond investors are expressing concern. But moderately rising rates are not necessarily a bad sign, at least not for the private economy, and may be a positive for high-yield and emerging market fixed income investors, according to Fran Rodilosso, Fixed Income Portfolio Manager at Market Vectors ETFs.
"The rise in yields appears to reflect a general belief, right or wrong, that the underlying economy is strengthening, the surprise drop in fourth quarter GDP notwithstanding," said Rodilosso. "For me, it would be more frightening should yields return to their prior low levels, a sure sign that the U.S. economy is dragging again, or as a result of a disruptive economic event in Europe, China, or elsewhere that shakes global confidence."
Rodilosso noted that "spread product" - bonds that tend to trade in relation to 10-year Treasury yields - began reacting to the higher yield environment this week. This includes both investment grade and high-yield corporate debt. "The spreads on investment grade debt are historically tight, but I think high-yield paper may have at least a small amount of spread cushion remaining," Rodilosso said. "Credit quality could improve in a growing economy, so the corporate debt world, which overall is far healthier than the U.S. government, still warrants investment consideration in my view."
While Treasury yields could retreat again, the Market Vectors Portfolio Manager believes fixed income investors who have not already done so should start to consider hedging their bets as the market moves towards a more normalized "risk free" Treasury rate.
"There are various ways to adjust a fixed income portfolio - reducing interest rate duration, adding floating rate exposure or inflation-linked notes, for example," Rodilosso said. "I am also an advocate of local currency emerging markets debt, based on stronger fundamentals of some of those countries and their currencies exhibited at the sovereign level and the fact that most of those borrowers are still paying interest rates that are not artificially low."
Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, including 17 years covering emerging markets. Among the Market Vectors ETFs under his watch are Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), LatAm Aggregate Bond ETF (NYSE Arca: BONO), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), International High Yield Bond ETF (NYSE Arca: IHY), Renminbi Bond ETF (NYSE Arca: CHLC) and Investment Grade Floating Rate ETF (NYSE Arca: FLTR). As of December 31, 2012, the total assets for these ETFs amounted to approximately $1.4 billion.
Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions.
Please note that the information herein represents the opinion of the portfolio manager and these opinions may change at any time and from time to time. This is not a recommendation to buy or sell any security nor is it intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
About Market Vectors ETFs
Market Vectors exchange-traded products have been offered since 2006 and span many asset classes, including equities, fixed income (municipal and international bonds) and currency markets. The Market Vectors family totaled $27.6 billion in assets under management, making it the fifth largest ETP family in the U.S. and eighth largest worldwide as of December 31, 2012.
Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals including gold, and other alternative asset classes. Van Eck Global has offices around the world and managed approximately $36.6 billion in investor assets as of December 31, 2012.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. The Funds' underlying securities may be subject to call risk, which may result in the Funds having to reinvest the proceeds at lower interest rates, resulting in a decline in the Funds' income.
The Funds may be subject to credit risk, interest rate risk and a greater risk of loss of income and principal than those holding higher rated securities. As the Funds may invest in securities denominated in foreign currencies and some of the income received by the Funds may be in foreign currency, changes in currency exchange rates may negatively impact the Funds' returns. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability. Investors should be willing to accept a high degree of volatility and the potential of significant loss. The Funds may loan their securities, which may subject them to additional credit and counterparty risk. For a more complete description of these and other risks, please refer to the Funds' prospectus and summary prospectus.
The "net asset value" (NAV) of an ETF is determined at the close of each business day, and represents the dollar value of one share of the ETF; it is calculated by taking the total assets of an ETF subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as an ETF's intraday trading value. Investors should not expect to buy or sell shares at NAV. Total returns are based upon closing "market price" (price) of the ETF on the dates listed.
Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR or visit vaneck.com/etf. Please read the prospectus and summary prospectus carefully before investing.
Van Eck Securities Corporation, Distributor 335 Madison Avenue, New York, NY 10017
Mike MacMillan/Chris Sullivan
KEYWORDS: United States North America New York
The article Moderately Rising Bond Yields May Be a Good Sign for Income Investors, Says Market Vectors' Fran Rodilosso originally appeared on Fool.com.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.