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T Rowe Price expands emerging markets bond fund lineup


T Rowe Price has launched an emerging markets bond fund that invests in local currency bonds. The T Rowe Price Emerging Markets Local Currency Bond Fund seeks to provide high income and capital appreciation and allows investors to diversify away from the US dollar. Individual investors can access the strategy through a no-load mutual fund (PRELX) or Advisor class shares (PAELX) that are available through financial advisors.  

The Emerging Markets Local Currency Bond Fund usually invests at least 80% of its assets in emerging market bonds issued in local currencies. While the mutual fund can invest in bonds issued by companies in emerging markets and other entities, it expects to invest primarily in sovereign bonds issued by emerging market governments.

Currently the fund is diversified across more than 15 different emerging market local currencies in Europe, Asia, Latin America, and the Middle East and Africa, and has an approximate duration of 4.5 years. The average yield to maturity is about 6.4% and over 70% of the fund’s assets are in investment-grade bonds.

Complementing T Rowe Price’s existing international bond offerings, the Emerging Markets Local Currency Bond Fund will use the firm’s longstanding expertise and deep resources dedicated to investing in international bonds.

The mutual fund will be managed by Chris Rothery and Andrew Keirle, who have managed this strategy for international institutional investors since 2007 via the T Rowe Price Funds SICAV – Emerging Local Markets Bond Fund. Rothery has 23 years of investment experience, 16 of which have been with T Rowe Price. And Keirle has been with T Rowe Price for five years, with a total of 14 years experience in investing.

T Rowe Price managed USD10.4 billion in emerging markets bond strategies as of March 31, 2011, and has offered the T Rowe Price Emerging Markets Bond Fund (PREMX) for over 16 years.

Unlike the Emerging Markets Bond Fund, which invests in bonds issued in US dollars, the potential return of the Emerging Markets Local Currency Bond Fund will be primarily driven by currency performance, as well as local interest rate movements and credit fundamentals. Consequently, the returns between these two mutual funds can be quite different.

"The prospect of currency appreciation is an important component of the Emerging Markets Local Currency Bond Fund’s potential return," says. Rothery. "We’re seeing evidence that these currencies may appreciate relative to the US dollar over the long term. But investing in emerging market local currency bonds offers more than diversification away from the US dollar. We’re also seeing a structural shift in bond markets, from developed markets to emerging markets, as emerging markets bonds improve in credit quality.

"Additionally, the asset class presently benefits from attractive income potential, given the current low interest rate environment in the United States, with countries like Brazil, Indonesia, and Turkey yielding more than 7%,."

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