Turkey’s local currency plunged, which serves as a reminder to potential emerging markets (EM) investors that an active management strategy can be a great benefit.
Like the rest of the world, Turkey is grappling with rising inflation, but what triggered the sell-off in the lira was the monetary policy response. Turkish President Recep Tayyip Erdogan has been doggedly slashing interest rates when they should be heading higher.
In the grand scheme of things, it’s a reminder to investors that emerging markets aren’t to be taken lightly. That’s especially true today in the contentious environment in which inflation could be tamping down an economic recovery in EM.
“On paper, 2021 should have been a great year for emerging market currencies and bonds as global growth recovered from the Covid-19 shocks,” the Financial Times reports. “But Turkey’s alarming currency plunge this year has shown how things can sometimes go horribly wrong in the emerging market world.”
“On the checklist for emerging market strength is a series of ticks: strong export growth, accommodative monetary policy in the big developed economies, rising currency reserves and strong commodity prices,” the Financial Times adds. “Yet JPMorgan’s index of emerging market currencies has dropped 9 per cent this year and yields have risen.”
Withstand Challenges in EM
One strategy for playing emerging markets is to leave the legwork in the hands of experts via active management. One way is through the Global X Emerging Markets Bond ETF (EMBD).
EMBD is an actively managed fund sub-advised by Mirae Asset Global Investments (USA) LLC that seeks a high level of total return, consisting of both income and capital appreciation, by investing in emerging market debt. EMBD primarily invests in emerging market debt securities denominated in U.S. dollars. However, the fund may also invest in those denominated in applicable local foreign currencies.
Securities may include fixed-rate and floating-rate debt instruments issued by sovereign, quasi-sovereign, and corporate entities from emerging market countries. This adds a touch of diversification to an investor’s core bond portfolio.
EMBD gives investors:
- Experienced portfolio managers: EMBD’s portfolio managers have extensive track records in actively managed emerging market debt strategies.
- Competitive cost: At a 0.39% total expense ratio, EMBD offers the outperformance potential and risk management of active portfolio managers at a competitive cost.
- High yield potential: By targeting emerging market debt securities, EMBD aims to offer high yields with low correlations to other fixed income securities.
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