Interest rates continue to be held down by “unnatural forces” – the policies of the Federal Reserve (Fed) – with the bond market focusing closely on how those forces will be withdrawn over the next 12-24 months, according to Fran Rodilosso, fixed income portfolio manager for Market Vectors ETFs.
“Today’s price action post the employment report notwithstanding, at this point in the cycle, I believe equity markets are signaling increased optimism while bonds are reflecting still low inflationary expectations and a belief that the Fed will continue its easy monetary policy, even as it tapers its asset purchases,” Rodilosso said. “In my view, if you are an optimist on the U.S. economy, you should be a little concerned about Treasury yields at 2.72 percent on the 10-year yield1.”
Rodilosso noted that investors who were bold enough to extend duration at the beginning of 2014 have done quite well through the first quarter, so that for the moment higher rates are not just a one-way trade. That, however, is unlikely to persist in his view.
“A ‘normalization’ of rates over the next 1-2 years may not be as dramatic as what we saw trough to peak in 2013, and the shorter end of the yield curve may be the more vulnerable spot now, but I believe there is still ample scope for the entire yield curve to shift upward,” the Market Vectors portfolio manager said. “Investors should continue to keep this in mind as they decide how they want to position their fixed income portfolios.”
Mr. Rodilosso has over 20 years of experience trading and managing risk in fixed income investment strategies, including more than 17 years covering emerging markets. Among the Market Vectors ETFs under his watch are Investment Grade Floating Rate ETF (NYSE Arca: FLTR®), Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHYTM), Emerging Markets Aggregate Bond ETF (NYSE Arca: EMAGTM), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM®),Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC®), Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL®), International High Yield Bond ETF (NYSE Arca: IHY®), and Renminbi Bond ETF (NYSE Arca: CHLC®). As of February 28, 2014 the total assets for these ETFs amounted to approximately $1.4 billion.
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. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. ©2014 Van Eck Global.
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 $34.0 billion in assets under management, making it the eighth largest ETP family in the U.S. as of February 28, 2014.
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.
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. The Funds may loan their securities, which may subject them to additional credit and counterparty risk. The Funds may be subject to risks associated with investing in high-yield securities; which include a greater risk of loss of income and principal than funds holding higher-rated securities, as well as concentration risk; hedging risk; and short sale risk. Investors should be willing to accept a high degree of volatility and the potential of significant loss. For a more complete description of these and other risks, please refer to the Funds’ prospectus and summary prospectus.
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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.
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Not FDIC Insured — No Bank Guarantee — May Lose Value
Mike MacMillan/Chris Sullivan