The so-called “Great Rotation,” an anticipated global shift from bonds to stocks, may take longer than expected to happen as concerns linger over the strength of economic growth in Europe, China, and the U.S., according to Fran Rodilosso, Fixed Income Portfolio Manager at Market Vectors ETFs.
“Despite optimism on the growth front, there are still plenty of signs that growth could lag, potentially confounding the market’s expectations and slowing the pace of the much-anticipated ‘Great Rotation’ from bonds to equities during the course of 2013,” said Rodilosso. “While many economies around the world appear to be strengthening, there are still enough trouble spots, including political upheaval in Europe and an unraveling of some of the recent credit-led growth in China, to potentially undermine a wholesale movement from fixed income into equities this year. Any sort of ‘Great Rotation’ may take us into 2014 or possibly even further out on the calendar.”
“If and when inflation does return, equities may be a good bet,” Rodilosso added.
Rodilosso noted that while the long-term prospects for bonds may still be darkening, those who remain in fixed income may be well served by keeping an eye on duration as a way to mitigate risk. “While lower duration funds and instruments, including floating-rate debt funds, are not paying much yield right now, the opportunity cost for investing in these vehicles is also low, which I think makes them a potentially appealing option from a risk/reward perspective as a place to invest for modest yield or to hold in lieu of cash,” Rodilosso said.
Rodilosso noted that credit risk is not currently high on his list of worries. “If economies do disappoint in the second half of this year, my concerns over credit risk may heighten,” he said. “But I am more comfortable getting extra yield through credit risk than by extending duration.”
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 areInvestment Grade Floating Rate ETF (NYSE Arca: FLTR), 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), and Renminbi Bond ETF (NYSE Arca: CHLC). As of December 31, 2012, the total assets for these ETFs amounted to approximately $1.4 billion.
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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 is 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.
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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 totaled $27.6 billion in assets under management, making it the fifth largest ETP family in the U.S. and eighth largest worldwide as of December 31, 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 managed approximately $36.6 billion in investor assets as of December 31, 2012.
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