Plenty of equity traders and investors follow seasonal trends.
For example, it is widely known that tehre is a good six-month
period in which to be long stocks and another six-month time
frame is trying for equity bulls. The strong period started in
November.
That is just one example of the many seasonal trends traders
use. Commodities traders love seasonal trends. Gold bugs buying
up the yellow metal in advance of India's wedding season is one
example. But what about bonds? Are there seasonal trends for this
asset class?
Perhaps. On Thursday, Barron's
highlighted some interesting factoids from Ned
Davis Research
about on this year's shining asset classes: Emerging markets
bonds.
A bullish December for emerging markets debt would be keeping
with the theme of
surging inflows to the ETFs that track these
bonds
. The track record is in place.
Using the Barclays Emerging Markets Bond Index as the
measuring stick, Ned Davis Research points out that emerging
markets bonds have risen in 17 of the past 19 Decembers, Barron's
reports. Of the two down years in the sample, 1998 was one of
them and with good reason. That is the year and several Asian
economies suffered through major debt crises.
For many investors
ETFs
that track either dollar-denominated or bond denominated in local
currencies have become the preferred avenue for accessing
emerging markets debt. In terms of evaluating these ETFs on the
basis of seasonality, it must be noted that none of the marquee
emerging markets bond ETFs track the Barclays Emerging Markets
Bond Index and none of these ETFs are anywhere close to 19 years
old.
With that in mind, a couple of the familiar names among
emerging markets debt ETFs have a few Decembers under their
respective belts. That may give investors some indication as to
what to expect this month.
iShares J.P. Morgan USD Emerging Markets Bond Fund (NYSE:
EMB
)
Home to almost $6.8 billion in assets under management, the
iShares J.P. Morgan USD Emerging Markets Bond Fund is the largest
emerging markets bond ETF on the market today. EMB debuted in the
middle of December 2007, so for the purposes of this exercise,
that December was excluded because it was not a full trading
month for the ETF.
Over the previous four Decembers, EMB has been a decent
performer. It made a nice gain in December 2008, followed by a
flat performance the next year. In December 2010, the ETF traded
lower. Last December, EMB notched a small gain even as traders
departed riskier assets, of which they view emerging markets
debt, even the dollar-denominated variety held by EMB. EMB is off
0.14% to start this month.
PowerShares Emerging Markets Sovereign Debt Portfolio
(NYSE:
PCY
)
The PowerShares Emerging Markets Sovereign Debt Portfolio, EMB's
primary rival, debuted in October 2007, so there is one more full
December with which to evaluate this ETF's tendency for a Santa
Claus rally.
Since EMB and PCY can move in lockstep with each other over
short-term time frames, it is not surprising to see that from
December 2007 through December 2011 the two ETFs had similar
track records. For PCY that means three December gains (2007,
2008 and 2011) and two losses (2009 and 2010).
This month, PCY has moved in unison with EMB and is down 0.13
percent.
Non-Dollar ETFs
Given the ages of EMB and PCY, it is fair to say emerging markets
bond ETFs are a fairly new concept. If that is the case, then
those ETFs that track developing nations' debt denominated in
local currencies are babies. The two dominant funds in the local
currency EM bond space are the WisdomTree Emerging Markets Local
Debt Fund (NYSE:
ELD
) and the Market Vectors Emerging Markets Local Curr Bond ETF
(NYSE:
EMLC
),
both of which have over $1 billion in AUM
.
The data samples with each are small as this month is just the
third December of trading for each ETF. ELD and EMLC rose in
December 2010, but traded last December amid the risk-off,
flight-to-quality trade. The two are off to a good start this
month. ELD is up nearly 0.9 percent while EMLC is higher by half
a percent.
For more on emerging markets bond ETFs, click
here
.
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