Some institutional investors are starting to wade back into emerging market debt, while retail investors appear to have reduced their allocations over the past 12 months and still seem to be avoiding the asset class.
That is according to Fran Rodilosso, fixed income portfolio manager for Market Vectors ETFs.
“Poor relative performance last spring and summer as interest rate volatility increased, and the headline risks around the Chinese economy, the Russia/Ukraine situation, Venezuela, Turkey, and a host of other situations are likely, in my opinion, to have caused many retail investors to approach emerging market debt with renewed caution,” says Rodilosso. “While no one can predict with certainty when the market will turn, I believe the time may be right for investors with a longer-term view to consider taking a fresh look at this asset class.”
Rodilosso says there is evidence that some institutional asset managers, including asset allocation strategists, pension funds, and foreign fund managers, are now increasing exposure to emerging markets in various ways.
“These asset allocators may be looking for alternatives to the US dollar, access to non-repressed yield curves, and at this point in the credit cycle, ways to increase the diversification of their credit portfolios,” he says.
“Remember that the investable debt universe in EM is largely investment grade,” Rodilosso adds. “And many of the troubled markets have suffered in price terms. However, at the end of the day, it’s up to the investors and their advisors to judge if they are compensated for the risks they are taking.”