Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Hunting for Yield Overseas

By

Anyone who is truly trying to diversify and get out from under the weight of Bernanke's printing press should be looking at funds that have debt denominated in local currencies.

PrintPRINT
Now that Bernanke, Mario Draghi, and the newly elected government in Japan have all promised to crank up the printing presses, buying bonds in a local currency looks even more attractive. New Vernon's Turwari noted, "Developing countries such as Brazil and the original Asian Tigers all took their medicine two decades ago and now have much better balance sheets than the developed world. They also have greater growth prospects thanks to the demographics of urbanization and a younger population." While the race to debase remains in place, emerging market currencies should rise relative to the dollar over the next few years. The higher yields offered by Brazil or Turkey, while certainly due to many of the economic and potentially political challenges, are also simply remnants of a different decade when inflation conflict ran rampant.

Recognition of the power of local currency tailwind is evident in the recent growth in ETFs that focus on emerging markets bonds denominated in local currencies. Market Vectors Emerging Markets Local Currency (NYSEARCA:EMLC) and Wisdom Tree Local Debt (NYSEARCA:ELD) have seen inflows of 20% in 2012 and each now has in excess of $1.2 billion of assets under management. The iShares Emerging Market Local Currency Bond (NYSEARCA:LEMB), which only launched one year ago, saw $150 million net inflow during the last week of November, a 30% increase, to bring AUM to $750 million. These funds not only deliver approximately 3% to 5% in yield, but have also enjoyed from 9% to 20% price appreciation for year-to-date 2012. These funds own government issued bonds that have an investment grade rating and the yield is simply the coupon payment.

While the currency component can add to volatility, it should provide a nice tailwind over the next few years as the developed nations try to print their way out of debt. For those looking for yield and diversification away from the dollar, these funds make sense.

Twitter: @steve13smith

For more from Steve Smith, take a FREE 14-day trial to OptionSmith and get his specific options trades emailed to you along with exclusive access to his full portfolio. Learn more.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE