Driven by strong flows in the quarter, Market Vectors Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM) recently eclipsed the $200 million assets under management mark, according to Van Eck Global, the fund’s sponsor. Additionally, another fixed income ETF in the Market Vectors family, International High Yield Bond ETF (NYSE Arca: IHY) has seen its asset base increase to $257 million as of March 31, 2013, up from $210 million at the end of last year.
“It is not the much anticipated ‘Great Rotation’ into equities we see, but rather investors starting to move assets between sub-sectors of fixed income, seeking out the shorter end of the yield curve and diversifying the kinds of instruments they hold,” said Fran Rodilosso, Fixed Income Portfolio Manager at Market Vectors ETFs.
“The recent flows that we have seen suggest that investors are not giving up on bonds, but they are making a significant change in how they allocate to the asset class,” Rodilosso continued. “Short-term high yield, emerging markets credit and floating rate funds have gained significant assets during the quarter. At the same time, some U.S.-centric high-yield ETFs have seen fairly large outflows.”
Rodilosso believes that using a variety of tools to shorten duration makes sense given the uncertainty about the Federal Reserve’s ability to manage an eventual reversal of its present, highly expansionary monetary policy and asset purchase programs. Adding diversification within the high-yield universe also makes sense. “Currently, high yield is already shorter duration than investment grade debt on average,” Rodilosso said. “Many investors remain more comfortable with credit risk than they are with interest rate duration risk, as evidenced by the continuing demand for high yield in general.”
Rodilosso noted that short-term high yield and bank loans are not the only areas where there have been positive flows, citing the recent inflows into Market Vectors Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM) and International High Yield Bond ETF (NYSE Arca: IHY).
“A more pronounced rotation into equities may still be ahead of us,” Rodilosso said. “But in the meantime, it appears that many investors are actively repositioning their fixed income portfolios for an anticipated higher interest rate environment.”
Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, including 17 years covering emerging markets. In addition to HYEM and IHY, among the Market Vectors ETFs under his watch are Investment Grade Floating Rate ETF (NYSE Arca: FLTR), 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), and Renminbi Bond ETF (NYSE Arca: CHLC), Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHY). As of March 31, 2013, the total assets for these ETFs amounted to approximately $1.9 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 $26.1 billion in assets under management, making it the fifth largest ETP family in the U.S. and ninth largest worldwide as of March 31, 2013.
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 $35 billion in investor assets as of March 31, 2013.
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.
Mike MacMillan/Chris Sullivan
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