Speaking at the recent Inside ETFs conference in London, Fran Rodilosso, head of fixed income ETF Portfolio Management, VanEck, was part of a panel discussing fixed income and the challenges ahead, including rising rates, liquidity and more.
In an interview before his panel session, Rodilosso commented first on the conclusion of the deal that has brought Dutch ETF provider Think ETFs within the VanEck group, including a range of new fixed income ETFs.
“I am very happy that we have a broad suite on the basis of our knowledge as a firm and as Think ETFs are focused on European government and the high grade corporate markets it’s a nice continued filling out of our offerings.”
Rodilosso describes 2018 as an interesting year in terms of increased volatility, particularly around emerging markets.
“We manage assets in a variety of bond markets and the same factors that might be shaking those markets have shaken emerging markets, such as trade talks or trade wars and the concerns that those have created around emerging markets,” Rodilosso says.
“The fact that US growth has continued to be strong initially told the story of what was going on with emerging market currencies but around mid-summer a couple of emerging market currencies took on a life of their own which was mostly negative, such as Turkey and Argentina. There were fundamental drivers behind the concentrated selling of assets in those countries and we think that some of the concerns are unfounded.”
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Emerging markets have also shown resiliency, Rodilosso says. “If you can step back and take a look at fundamentals across emerging markets real foreign exchange rates then the picture is such that overall it seems to me value has come back where it wasn’t before but you cannot predict where the volatility will appear.
“From a trading point of view, it’s difficult at times but you can make a case that there has been somewhat of an over-reaction and a lot of that story is because that is where a lot of the volatility has occurred.”
Beyond emerging markets, Rodilosso comments that the two questions he gets asked the most is how to protect from rising rates, including what is going to happen with rates as the US, Europe and Japan exit the strategies they have pursued and when is the credit cycle going to turn and will there be a high level of defaults.
“The rate picture in the US is one of a steady period of normalisation which has caused less disturbance in the credit markets,” Rodilosso says. “Spreads have held in, supply and demand has remained balanced.”
Further afield, Rodilosso says look at what central banks actually hold as they start to clear their balance sheets.
“In Japan, for instance, it’s government bonds, equities and ETFs where the highest vulnerability is. As they compete for investment dollars and rates go up it creates competition for other asset classes.”