Some negative headlines have emerged in recent weeks from
various Latin American nations, in turn pressuring the region's
equity markets and the relevant U.S.-listed
. For example, news of the seizure of Colombia's largest
brokerage house has
roiled the Global X FTSE Colombia ETF (NYSE:
Venezuela's re-election of Hugo Chavez and the reaction by the
result of last week's U.S. elections, which have weighed on the
iShares MSCI Mexico Investable Market Index Fund (NYSE:
), stand as other examples of recent headline risk for Latin
Even with those risks, at least one portfolio manager still
sees opportunities with the region's bonds.
"If you just read the headlines, you might surmise that Latin
American countries are presenting the debt markets with multiple
reasons to be concerned," said Market Vectors portfolio manager
Francisco Rodilosso in a note. "But, bad news can also bring
Despite what what Rodilosso described as "discouraging
developments," some ETFs with heavy exposure to Latin American
bonds have held up well in recent weeks. The Market Vectors LatAm
Aggregate Bond ETF (NYSE:
) has jumped 1.5 percent in the past month.
BONO, which pays a monthly dividend and features a 30-day SEC
yield of almost 5.4 percent, allocates more than 59 percent of
its combined weight to Mexican and Brazilian bonds. Venezuelan
issues comprise another 10.6 percent. When accounting for
regional headline risk, it is still worth noting that more than
two-thirds of BONO's holdings are rated investment-grade.
"Brazil is certainly one of those markets where we think bad
news may allow investors to find credit opportunities, " said
Brazil and Mexico combine for nearly 15 percent of the Market
Vectors Emerging Markets Local Currency Bond ETF's (NYSE:
) weight. That ETF is down modestly in the past month, but factor
in the monthly dividend and a 30-day SEC yield of over five
percent and the losses are erased. Nearly 61 percent of EMLC's
holdings, which are denominated in local currencies, are rated
"You can see silver linings," Rodilosso noted. "One includes
the fact that Venezuela has continued to exhibit a willingness to
pay the high rates demanded by the market during the nearly 14
years of the Chavez regime. Also, Mexico has made significant
economic gains in recent years, making it far more competitive
with China as a global manufacturing hub. There are a large
number of Mexican corporate bond issuers that are
The reelection of Chavez, though never in doubt, was seen by
some traders as potentially negative even for Venezuelan debt,
but ETFs offering ample exposure to the country's bonds have also
held up well in the past month.
The Market Vectors Emerging Markets High Yield Bond ETF (NYSE:
), the first ETF to focus on junk bonds issued by developing
nations, features a weight of almost 8.2 percent to Venezuela.
That ETF, with a 30-day SEC yield of 6.6 percent, has risen
modestly in the past month.
Overall, Rodilosso views the outlook as more positive than
negative for investors in Latin American bonds.
"While volatility has certainly made its presence felt in
recent months in many countries, there are many of what I would
call 'un-emerging market' forces at work at the same time. Low
debt-to-GDP ratios, high FX reserves and a long list of private
sector borrowers have shown the ability and willingness to
continue servicing their debt throughout the economic and credit
cycle," he said.
Rodilosso serves as the portfolio manager for BONO, EMLC and
HYEM which combined have over $1 billion in AUM.
For more on Latin American bonds, click
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