How this Vanguard Emerging Markets Bond Fund outperforms

VaselineOctober 5, 2024

0 2 minutes read

How this Vanguard Emerging Markets Bond Fund outperforms

A debt crisis is brewing in Africa. The continent’s debt obligations — which topped $1 trillion at the end of 2023 — could compromise future economic growth, according to the African Development Bank. And in recent years, a handful of countries, including Ghana, Zambia and Ethiopia, have defaulted.

This news prompted us to check in at Vanguard Emerging Markets Bond Fund (VEMBX) – a member of the Kiplinger 25, our favorite no load mutual funds.

managers Dan Shaykevich and Mauro Favini invest mostly in dollar-denominated government debt issued in developing countries. At last report, the fund held 13% of its assets in African IOUs. That’s a higher percentage than the fund’s benchmark, the JPMorgan Emerging Markets Bond Index, but less than the fund’s peer index.

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Managers are not worried though. Despite Africa’s sizable debt burden, overall African sovereign bond defaults have so far been small relative to the benchmark, Favini says. And “the overall asset class of dollar-denominated emerging market debt has not experienced significant declines or contagion,” he says.

Meanwhile, the fund continues to outperform its peers. Over the past 12 months, it has returned 14.4%, outperforming 65% of other emerging markets. bond funds. A “cautious” positioning towards 2024 has contributed to the fund’s performance over the past year. Managers made profits from their “low quality” holdings, for example.

Making the right macroeconomic calls in 2023 also helped, Favini says. Among them: increasing the duration of the fund, a measure of interest rate sensitivity, to 6.5 years from 3 years. Bond prices and interest rates they move in opposite directions, so a duration of 6.5 years implies that if rates fall by one percentage point over the course of a year, the fund’s net asset value will increase by 6.5%. In the past 12 months, some emerging central banks, including China, Brazil and Mexico, have cut interest rates. The fund has yields of 6.4%.

Note: This article first appeared in Kiplinger Personal Finance Magazine, a monthly, trusted source of advice and guidance. Subscribe to help you earn more money and keep more money you earn Here.

VaselineOctober 5, 2024

0 2 minutes read

Vaseline

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