Standard & Poor’s recently announced its decision to upgrade Greek sovereign debt by six notches, a significant move and further support for the rally in global credit markets that has been underway since the summer, according to Fran Rodilosso, fixed income portfolio manager at Market Vectors ETFs.
“Concerns about a 'Grexit' (possible Greek Exit from Eurozone), which flared up in May, interfered with the credit rally that had been under way since Q4 2011,” said Rodilosso. “Since then, U.S. elections, the fiscal cliff, and concerns over China's slowing growth and its change in leadership have also been issues that weighed on market sentiment. But Greece, as insignificant as it might be as a standalone economy, has remained a potent symbol of the Eurozone's failures and its potential for unraveling, and held an outsized role as a significant driver of global sentiment.”
“As for S&P’s upgrade, it makes sense to me since it is based on the depth of support on display from Greece's neighbors,” added Rodilosso. “But the country's absolute level of debt, even as projected out 10 years, is still frightening in my view.”
“While we do not focus on the Greek sovereign paper in any of our ETFs, we have still noted that there may be opportunities to be found among corporate bonds,” he continued. “OTE (Hellenic Telecom), which we own in our passive Market Vectors International High Yield Bond ETF (IHY), is one such issuance. The OTE story was arguably a compelling one even in a ‘Grexit’ scenario as it has disclosed significant and profitable assets outside Greece, loans from Greek banks that might be ‘drachma-ized’ in an exit scenario, a relatively strong foreign shareholder base, and a domestic business unit that has held up well. OTE's 2014 bonds have recovered in price by approximately 65 percent since May, when they traded at 60 cents on the dollar.”
“Even amid a potential sovereign disaster, there are often some very good companies whose debt might have better recovery value than sovereigns in a worst case scenario and which also might be had at bargain prices when the news is most grim,” added Rodilosso.
Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, including 17 years covering emerging markets. Among the Market Vectors ETFs under his watch are Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), LatAm Aggregate Bond ETF (NYSE Arca: BONO), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), International High Yield Bond ETF (NYSE Arca: IHY), Renminbi Bond ETF (NYSE Arca: CHLC) and Investment Grade Floating Rate ETF (NYSE Arca: FLTR). As of November 30, 2012, the total assets for these ETFs amounted to approximately $1.4 billion.
Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions.
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. This not a recommendation to buy or sell any security nor is it intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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 totals $27.9 billion in assets under management, making it the fifth largest ETP family in the U.S. and eighth largest worldwide as of September 30, 2012.
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. Van Eck Global has offices around the world and manages approximately $37.8 billion in investor assets as of September 30, 2012.
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 Fund may be subject to credit risk, interest rate risk and a greater risk of loss of income and principal than higher rated securities. As the Fund will invest in securities denominated in foreign currencies and some of the income received by the Fund will be in foreign currency, changes in currency exchange rates may negatively impact the Fund’s return. 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. Investors should be willing to accept a high degree of volatility and the potential of significant loss. The Fund may loan its securities, which may subject it to additional credit and counterparty risk. For a more complete description of these and other risks, please refer to the Fund’s prospectus and summary prospectus.
The “net asset value” (NAV) of an ETF is determined at the close of each business day, and represents the dollar value of one share of the ETF; it is calculated by taking the total assets of an ETF subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as an ETF's intraday trading value. Investors should not expect to buy or sell shares at NAV. Total returns are based upon closing “market price” (price) of the ETF on the dates listed.
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.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR or visit vaneck.com/etf. Please read the prospectus and summary prospectus carefully before investing.