• Brazilian Real Stuck in a Rut: In 2011, 2013 and 2014, the real stripped -2.1%, -1.7% and -1.1%, respectively, off WTEMHY’s performance, as the real declined -11.0%, -13.1% and -11.1% in those years. This underperformance continued into 2015 and is largely a function of Brazil’s macroeconomic picture that has been saddled with slow growth, sticky inflation, stubborn twin deficits and a lack of reform. Due to relatively high short-term interest rates in Brazil, there may be an opportunity to look at short-term interest rates and currency markets in Brazil as a tactical opportunity.
I believe the recent emerging market performance and negative sentiment has created some opportunities. Further, the stabilization of currencies has the potential to improve investors’ risk-adjusted returns. Markets may deviate from the underlying fundamental value for a number of reasons and can stay irrational for long periods, but I believe they eventually revert back to underlying fundamentals. One way to take advantage of the EM space is to do so is through a rules-based strategy that hones in on fundamentals and provides sufficient income potential—such as the strategy the WisdomTree Emerging Markets Equity Income Index is based on.
1Sources: WisdomTree, Bloomberg as of 4/30/15.
2Period measured: 7/31/14–4/30/15.
3Source: Bloomberg, with data from 12/31/14–4/30/15.
4Measures on MSCI EM from 4/31/05 to 4/31/15.
5Returns measured on WTEMHY at the net U.S. dollar level.
Important Risks Related to this Article
Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments.