Etikett: Bonds

Emerging Markets Bonds Continue To Rally

Emerging Markets Bonds Continue To Rally VanEckEmerging Markets Bonds Continue To Rally

The overwhelming influence of G-3 (U.S., Japan, and Europe) monetary policy has been the dominant theme in emerging markets debt this year, and September was no exception. U.S. interest rate volatility leading up to the Federal Reserve (the “Fed”) meeting impacted hard currency bonds, while local currency sovereign bonds were boosted by stronger currencies and lower local interest rates. Overall, accommodative policies and contained inflation continue to provide support, and all sectors of emerging markets debt produced positive returns in September. Emerging Markets Bonds Continue To Rally.

Rate Volatility and Curve Steepening

Interest rate volatility was a primary concern in September as the market grappled with the possibility that the major developed market central banks might be on the verge of policy shifts. The European Central Bank and the Bank of Japan versions of quantitative easing are both under review and the anticipated impact of reversals or tapers led to steeper curves. In the U.S., the Fed remained on hold, as expected, but took a more hawkish tone with regard to the likelihood of a single hike before yearend. Even so, the scaled back rate expectations of Fed governors in the “dot plot” showed only two potential hikes in 2017.

Emerging Markets Credit Developments

Amid the focus on developed market central bank actions, there were several notable credit stories in emerging markets. After the political events of the summer, Turkey lost its investment grade status following a downgrade by Moody’s Investors Service. Some forced selling of Turkish hard currency sovereign bonds will likely occur due to its removal from investment grade indices at the end of October. Hungary, by contrast, regained investment grade status following an upgrade by Standard & Poor’s (S&P), which may support additional inflows in coming months. Turkish spreads widened while spreads on Hungarian sovereign bonds tightened. We continue to have conviction in higher quality hard currency sovereign bonds, and believe they can offer an attractive yield pickup versus core investment grade fixed income sectors, without excessive risk.

On the corporate side, Petroleos de Venezuela S.A. (PDVSA) was downgraded further into junk territory by S&P following the announcement of a proposed debt swap that could be characterized as a distressed exchange. Although a successful swap would buy time by reducing 2017 maturities, clearly the PDVSA and sovereign bonds continue to price in a very high risk of default with yields ranging between 15% and 50% (annualized for shorter maturity bonds in the latter case). The high current yields on the bonds coupled with a price recovery this year as Venezuela continues to apply band aids to its longer term structural problems, have made the country a top performer in the hard currency space year-to-date. In addition, Brazil’s Petróleo Brasileiro S.A. (Petrobras) announced a new spending plan through 2021 that aims to regain investment grade status by reducing leverage, primarily through an ongoing asset sale program.

The mixed ratings actions, and more generally the mixed data through the month reflect the economic diversity within emerging markets. There were inflation upside and downside surprises in September, and although Mexico hiked rates many emerging markets central banks currently appear to favor further easing. Both Indonesia and Russia cut rates, and Brazil may be poised for rate cuts later this quarter. Overall, the fundamental picture in emerging markets continues to brighten, given that real GDP growth is expected to recover this year to 3.9% and further accelerate in 2017, and current account balances are improving as exports increase.

Strong Local Currency Performance As Rates Remain Steady

Returns in the emerging markets debt space have so far in 2016 ranked commensurately with risk. More specifically, local debt has been the top performer, with a total return of 17.08% YTD after a very strong September (2.02%). Although local sovereigns are lower duration by nearly two years versus U.S. dollar sovereigns, currency risk has tended to be a major factor in volatility and returns (though currency movements explain only about 40% of this year’s return through the end of September). Hard currency corporate debt has actually lagged hard currency sovereign debt, but when one considers the greater than two year duration difference between the asset classes in a year when U.S. Treasury yields have moved significantly lower, the performance difference makes sense. In both the sovereign and corporate hard currency space, high yield has performed significantly better than investment grade.

South Africa, Colombia, and Russia were the top performing countries in the local space, while the Philippines, Mexico, and Malaysia posted negative returns, mostly on currency weakness. In contrast to most emerging markets currencies, the Mexican peso has depreciated 11% against the U.S. dollar. In addition to sluggish economic growth, much of the weakness has been attributed to the upcoming U.S. presidential election and the consequences of a potential Trump presidency. Further volatility is possible over the next month.

Hard currency bonds were impacted by U.S. rate movements in the first half of the month, but generally recovered by month end. Sovereign bonds returned 0.40%, with many of the riskier names outperforming as a result of both spread tightening and a lower duration versus higher quality issuers, which were more impacted by the steepening of the yield curve. The same was true for corporate bonds, which finished September with a small positive return overall (0.18%) while the high yield segment returned 1.14% for the month. Emerging markets high yield bonds yielded 0.51% more than U.S. high yield bonds at the end of September, and provided a pickup of 80 basis points in option-adjusted spread terms. The spread advantage tightened 20 basis fallen angels points during the month, driven largely by an influx of Turkish bank “fallen angels” entering the BofA Merrill Lynch Diversified High Yield US Emerging Markets Corporate Plus Index (EMLH or the “Index”). Although these bonds are tighter than the rest of the overall Index, we believe these bonds are trading at spreads that are attractive for BB rated bonds.

Looking Ahead: December Rate Hike Coming into Focus

As we enter the fourth quarter, given the significant gains in emerging markets debt already achieved this year, one might ask: Where do we go from here? Near term uncertainty will likely come from the approaching U.S. elections, the continued positioning of Organization of Petroleum Exporting Countries (OPEC) members and the resulting impact on oil prices, and the precarious capital positions of some European banks. Most significantly, the prospect of a December rate increase in the U.S. will increasingly come into focus. However with a liquidity backdrop that is still very supportive, yields that remain attractive, and fundamentals that continue to improve, we believe that the investment case for emerging markets debt is not likely to be diminished with the next rate hike.

September 2016 1-Month Total Returns by Country

(Click to enlarge) Source: FactSet as of 9/30/2016. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

RELATED FUNDS

VanEck VectorsTM ETFs

CBON
ChinaAMC China Bond ETF

EMAG
Emerging Markets Aggregate Bond ETF

EMLC
J.P. Morgan EM Local Currency Bond ETF

HYEM
Emerging Markets High Yield Bond ETF

IGEM
EM Investment Grade + BB Rated USD Sovereign Bond ETF

IHY
International High Yield Bond ETF

VanEck Funds
EMBAX
Unconstrained Emerging Markets Bond Fund: Class A

Fran Rodilosso    Head of Fixed Income ETF Portfolio Management
Portfolio Manager for Fixed Income ETFs
Oversees the Fixed Income ETF team; responsible for portfolio strategies, as well as credit and market analysis; specializes in international bond markets
Investment Management Team member since 2012
Prior to joining VanEck, Managing Director of Global Emerging Markets with The Seaport Group; launched the firm’s emerging markets fixed income sales and trading business
Previously held portfolio management positions at Greylock Capital and Soundbrook Capital; focused on corporate high-yield and distressed bonds with an emphasis on emerging markets
Earlier career experience includes senior fixed income trading positions at Credit Lyonnais and HSBC
Quoted in Financial Times, Barron’s, and ETF Trends, among others
CFA charterholder; member of New York Society of Security Analysts
MBA (with distinction), Finance, The Wharton School of Business, University of Pennsylvania; AB, History, Princeton University

Important Definitions and Disclosures

Sources of all data: FactSet, J.P. Morgan, and BofA Merrill Lynch. All data is as of 9/30/2016.
Quantitative easing is a monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
Duration is a measure of the sensitivity of the price of a fixed-income investment to a change in interest rates.
The use of leverage may magnify both gains and losses.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a fund. An index’s performance is not illustrative of a fund’s performance. Indices are not securities in which investments can be made.
BofA Merrill Lynch Diversified High Yield US Emerging Markets Corporate Plus Index (EMLH) is comprised of U.S. dollar-denominated bonds issued by non-sovereign emerging markets issuers that are rated below investment grade and that are issued in the major domestic and Eurobond markets.
The information herein represents the opinion of the author(s), but not necessarily those of VanEck, and these opinions may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this commentary.
Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Securities may be subject to call risk, which may result in having to reinvest the proceeds at lower interest rates, resulting in a decline in income. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact a Fund’s return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.

Hard Currency Emerging Markets Bonds Shine in August

Hard Currency Emerging Markets Bonds Shine in August

Key Takeaways as of August 31, 2016 – Hard Currency Emerging Markets Bonds Shine in August

•    The search for yield continues to fuel strong flows into emerging markets debt funds
•    Hard currency sovereign bonds outperformed, driven by tightening spreads over U.S. Treasuries
•    Emerging markets high yield corporate bonds were also solid performers, and provided a notable pickup in yield over U.S. high yield
•    Although skittishness over a possible Federal Reserve rate hike may continue in September, the climate appears to remain supportive for emerging markets debt

Skittishness has increased in September over a potential hike in U.S. interest rates, especially ahead of next week’s (9/20-9/21) FOMC meeting. In August (the month covered in this post), these concerns were mostly in the background. The ongoing search for yield continues to bring investors into emerging markets debt. Our view is that a rate hike by the Federal Reserve (the “Fed”) is not likely to dampen this trend, and that the environment for emerging markets debt will remain supportive.

All Eyes on the Fed

Investors focused on the Fed’s annual event in Jackson Hole, Wyoming (held in late August) for clues about the likely path of interest rates. A surprisingly strong July jobs report led to increasing expectations of a rate hike before the end of the year, and comments from Yellen and Fed Vice Chairman Stanley Fischer seemed to support that case. However, following the meeting weaker than expected U.S. manufacturing and August employment figures seem to have convinced the market that an imminent rate hike is now less likely.

Despite this rate uncertainty, flows into emerging markets debt remained strong in August, slightly moderating from the previous month. Globally, $8.0 billion flowed into emerging markets debt funds according to J.P. Morgan, bringing year-to-date flows to $31.3 billion, with $29.0 billion going into hard currency debt.

Developments in August

With approximately $11.7 trillion in negative yielding global debt, investors continued to allocate to emerging markets debt despite negative developments in some countries. In South Africa, an investigation of the finance minister increased uncertainty over leadership and caused the South African rand to tumble. Turkey maintained its investment grade status for now, but reviews are ongoing and Fitch Ratings lowered its outlook to negative. Standard & Poor’s lowered Mexico’s rating outlook to negative, citing sluggish growth and increasing debt. The agency noted that structural reforms undertaken continue to show positive results, but have not yet stimulated sufficient investment. In Brazil, President Dilma Rousseff was ousted by the Senate, providing hope that the country can move on with fiscal reforms under President Michel Temer. However, Temer’s ability to impose fiscal discipline is unclear, as the country remains divided with relatively little appetite for austerity measures.

There were also positive developments in August. Colombia’s government announced a peace deal with FARC (The Revolutionary Armed Forces of Colombia), ending a 52-year-old war with the leftist rebel group. If successful, the Colombian government may now be able to focus on much needed tax reforms. In addition, the strength of emerging markets local currencies this year, assisted by commodity price gains, has helped central banks build up foreign currency reserves for the first time in two years.

Besides bullish political developments in Brazil, there are signs that monetary policy has turned more supportive as Brazil’s central bank indicated potential room for easing. Low or slowing inflation in other countries (e.g., Russia and Indonesia) may provide central banks room to ease rates or end tightening cycles to help boost growth. Elsewhere, including Chile and Mexico, central banks appear to maintain a more hawkish tone.

Spread Tightening Boosts Hard Currency Bonds

In August, hard currency sovereign bonds returned 1.79%, outperforming local currency sovereign bonds, which returned 0.04% (all returns are stated in U.S. dollar terms), and corporates which returned 1.18%. Returns of hard currency bonds were driven by a tightening of spreads over U.S. Treasuries. Local currencies detracted from positive local bond returns as the U.S. dollar showed strength amid expectations of a rate increase.

Latin America was the highest returning region among hard currency sovereign bonds. Both Peru and Colombia released positive economic data, with the latter also benefiting from the peace process. Bonds issued by Mexico were also top performers, despite a cut to the country’s credit rating outlook. Laggards included Mongolia, South Africa, and Chile.

Also of note within the hard currency bond universe is the relative performance of emerging markets high yield corporate debt. At 14.75% total return through the end of August, the sector is performing in line with U.S. high yield, which has returned 14.58%, and is 600 basis points ahead of emerging markets investment grade corporates which have returned 9.35% year-to-date. Emerging markets high yield corporates were still yielding above 7% at the end of August and provided 107 basis points pick-up versus U.S. high yield in option adjusted spread terms. Emerging markets high yield corporates currently have a one notch higher average credit rating than U.S. high yield and a shorter duration as well (3.74 vs. 4.20). That said, the spread pickup over U.S. high yield is near its lowest level since early 2013.

Among local currency sovereign bonds, Colombia, Russia, and the Philippines all experienced currency appreciation, adding to positive local bond returns. South Africa, Chile, and Indonesia were laggards. Chile’s government is dealing with an economic slowdown and rising pension costs. The ability to address these issues is in question given the unpopularity of the current government.

The Supportive Market Environment

In the short run, investors are likely to continue to focus on Fed action and the potential impact of a rate increase on the U.S. dollar. Despite these concerns, we feel the overall conditions remain supportive for emerging markets debt. Emerging markets yields continue to be attractive to investors looking beyond the low and negative rates available from most developed markets core fixed income asset classes.

1-Month Total Returns by Country

By Fran Rodilosso
CFA, Portfolio Manager

IMPORTANT DISCLOSURE

Please note that the information herein represents the opinion of the portfolio manager and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results; current data may differ from data quoted. Current market conditions may not continue. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this email and blog post.

Debt securities carry interest rate and credit risk. Bonds and bond funds will decrease in value as interest rates rise. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Securities may be subject to call risk, which may result in having to reinvest the proceeds at lower interest rates, resulting in a decline in income. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact a Fund’s return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.

Van Eck Securities Corporation
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A Market to Revisit

Emerging Markets Local Currency Bonds: A Market to Revisit

Emerging markets (”EM”) government bonds, particularly those denominated in local currencies, have bounced back in 2016. It’s time to look again at what they can offer. A Market to Revisit.

The past few years have not been kind to EM local currency bonds. Falling commodity prices and concerns about slowing global growth resulted in weak performance across many EM asset classes. Local currency bonds were particularly impacted by the robust U.S. dollar, which remained strong throughout 2015, and the prospect of four potential Federal Open Market Committee rate hikes in 2016. These headwinds caused investors to push valuations down to levels of extreme weakness, particularly on several EM currencies, which may have been oversold heading into 2016.

Q1 Tailwinds Provide Support

However, the Federal Reserve’s sentiment may have changed. The Fed appears to be taking a more dovish stance and the market is now expecting fewer rate hikes this year. Some immediate results could include a pullback in the U.S. dollar and the re-emergence of a risk-on appetite. These tailwinds have been strengthened by the first quarter rebound in commodity prices and the prospect of pro-growth political reform in several EM countries.

EM local currency bonds benefited from these supportive factors, which contributed to a return of 11.02% in the first quarter, as represented by the J.P. Morgan GBI-EM Diversified Index, significantly outperforming EM hard currency sovereign bonds and corporates. Every country in the index had both positive local bond market returns and currency appreciation for the period. Dedicated local currency funds also received significant inflows towards the end of the quarter.

Positive Flows as Investors Take Notice

Why the positive flows? After years of volatility and weak performance, EM local currency bonds may be underrepresented in many investors’ portfolios. In addition to market conditions being favorable in the first quarter, local currency bonds have some particularly attractive characteristics that stem from two distinct sources of return they provide: local interest rates and currencies.

Because of these distinct drivers of return, local currency EM bonds have exhibited low historical correlations with other segments of the fixed income market, especially core U.S. investment grade sectors, as shown below. Local currency EM bonds have also historically provided higher yields versus other EM bond sectors, with an investable universe that tends to be skewed more towards higher quality issuers. For example, 84% of local currency EM government bonds were rated investment grade at the end of the quarter, versus 63% of those denominated in hard currencies, as measured by the BofA Merrill Lynch Emerging Markets External Sovereign Index.

Low Correlation to Certain U.S. Fixed Income Sectors

As of March 31, 2016
(Click to enlarge) Source: Morningstar.

Historically Higher Yields Versus Other EM Sectors

As of March 31, 2016

(Click to enlarge) Source: FactSet. Index performance is not illustrative of fund performance. Fund performance current to the most recent month end is available by visiting vaneck.com/emlc.

These unique drivers of return are also sources of risk, and should be considered along with credit, economic, political and other risks associated with EM investments.

We believe that local currency EM bonds may potentially provide unique diversification benefits within a global fixed income portfolio, with both potentially higher yields and higher credit quality versus other EM fixed income sectors. For investors who have reduced their exposure in recent years, we believe it is a market worth revisiting.

Investors interested in this space may find easy access to local currency denominated bonds issued by emerging markets governments through VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC).

Authored by William Sokol, Product Manager, ETFs

ETFs is authored by VanEck thought leaders. VanEck is the sponsor of VanEck Vectors ETFs and is currently among the largest providers of exchange traded funds (ETFs) in the U.S. and worldwide. VanEck Vectors ETFs empower investors to help build better portfolios with access to compelling investment themes and strategies. Our ETFs span many global asset classes, and are built to be transparent, liquid, and pure-play reflections of target markets.

IMPORTANT DISCLOSURE

1 Source: J.P. Morgan Emerging Markets Bond Index Monitor, as of 3/31/16.
2 Correlation measures how two securities move in relation to each other.

This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.

The indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees, or expenses that are associated with an investment in any underlying exchange-traded funds. Historical performance is not indicative of future results; current data may differ from data quoted. Indexes are unmanaged and are not securities in which an investment can be made.

JPMorgan GBI-EM Global Diversified Index (GBI-EM) tracks local currency denominated EM government debt.

BofA Merrill Lynch Emerging Markets External Sovereign Index (EMGB) tracks US dollar and Euro denominated EM government debt.

The asset classes referenced in the charts are represented by the following indices: High Yield Bonds: Barclays US Corporate High Yield Index measures the market of U.S. dollar denominated, non-investment grade, fixed-rate, taxable corporate bonds. Investment Grade Corporate Bonds: Barclays US Corporate Investment Grade Index tracks the investment grade, fixed-rate, taxable, corporate bond market. Inflation Linked Bonds: Barclays US Government Inflation Linked Index tracks US Treasury Inflation Protected Securities (TIPS) with at least one year until final maturity Broad US Investment Grade: Barclays US Aggregate Bond Index tracks the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS, ABS and CMBS. Treasuries: Barclays US Treasury Index tracks U.S. dollar-denominated, fixed-rate debt with at least one year until final maturity issued by the U.S. Treasury. EM Local Sovereigns: JPMorgan GBI-EM Global Diversified Index (GBI-EM) tracks local currency denominated EM government debt. EM USD & EUR Sovereigns: BofA Merrill Lynch Emerging Markets External Sovereign Index (EMGB) tracks US dollar and Euro denominated EM government debt. EM USD Corporates: BofA Merrill Lynch US Emerging Markets Liquid Corporate Plus Index (EMCL) tracks the US dollar denominated nongovernment debt of EM.

Diversification does not assure a profit nor protect against loss.

An investment in the Fund may be subject to risk which include, among others, credit risk, call risk, interest rate risk, and sovereign defaults, all of which may adversely affect the Fund. High yield bonds may be subject to greater risk of loss of income and principal and are likely to be more sensitive to adverse economic changes than higher rated securities. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact the Fund’s return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability. The Fund’s assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) is not sponsored, endorsed, sold or promoted by J.P. Morgan and J.P. Morgan makes no representation regarding the advisability of investing in EMLC. J.P. Morgan does not warrant the completeness or accuracy of the J.P. Morgan GBI-EMG Core Index. ”J.P. Morgan” is a registered service mark of JPMorgan Chase & Co. © 2016. JPMorgan Chase & Co. All rights reserved.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.

High Yield Recovers, Fallen Angels Soar

High Yield Recovers, Fallen Angels Soar

High Yield Recovers, Fallen Angels Soar. Fallen angel bonds continued their history of outperformance, ending the first quarter ahead of the broad high yield bond market (+6.54% vs. +3.25%), as measured by the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) and BofA Merrill Lynch US High Yield Index (H0A0). The basic industry and energy sectors helped fallen angels’ performance, as oil prices bounced in February. Fallen angels are high yield corporate bonds that are originally issued with investment grade credit ratings. They offer a potential value proposition, as they tend to price in a high degree of risk ahead of downgrades to high yield, and may become oversold due to forced selling by institutional holders.

Fallen Angel Bonds Outperformed Broad High Yield in the First Quarter

Living up to their history of outperformance, fallen angel bonds (+6.54%) ended the first quarter having outperformed the broad high yield bond market (+3.25%) by 3.30%, as measured by the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) and BofA Merrill Lynch US High Yield Index (H0A0).1 Fallen angels are high yield corporate bonds that are originally issued with investment grade credit ratings.

Heavier Allocations to Basic Industry and Energy Drove Positive Results

Relative to the broad high yield bond market, fallen angels’ recent outperformance was primarily due to their higher average allocations to the basic industry and energy sectors. Both of these sectors’ bonds appreciated in the first quarter, as oil prices recovered approximately 46% since mid-February.2

Chart 1. Year-to-Date Top/Bottom Three Sector Attribution
BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) vs. BofA Merrill Lynch US High Yield Index (H0A0)

(Click to enlarge) Source: FactSet. Data as of March 31, 2016. Past performance is no guarantee of future performance. Top and bottom three sector attribution of the BofA Merrill Lynch US Fallen Angel High Yield Index for fallen angels versus the BofA Merrill Lynch US High Yield Index for the broad high yield bond market. Figures are gross of fees, non-transaction based and therefore estimates only. Past performance is not indicative of future results. Attribution represents the opportunity cost of investment positions in a group relative to the overall benchmark.

2016 Energy Sector Bias

Over the first quarter, fallen angels’ energy allocation grew from about 13% to 25%, while the broad high yield bond market’s went from approximately 11% to 13%.3 The overweight bias occurred as a result of the energy sector’s struggles in 2015, which led to investment grade energy companies suffering credit deterioration being downgraded to high yield. Allocating to bonds that are under ratings pressure may be considered a contrarian investment approach, which has tended to work for fallen angels in the past. Fallen angels tend to price in a substantial amount of this risk ahead of the ratings downgrades and, in general, become oversold from institutional forced selling upon entering the (H0FA) index, creating a potential value proposition.

Higher Quality High Yield

Fallen angels are generally characterized by higher average credit quality than the broad high yield bond market. While fallen angel bonds currently have a higher allocation to the energy sector than the broad high yield bond market, energy fallen angels are diversified across industries and concentrated in bonds with BB-credit (below investment grade) ratings.

ANGL Ranks at Top of High Yield Bond Category

Market Vectors® Fallen Angel High Yield Bond ETF (ANGL), which seeks to track the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), ranked at the top of the actively managed high yield bond category year to date and over multiple time horizons since its April 2012 inception.4

Chart 2. Performance Relative to Peer Group
Market Vectors Fallen Angel High Yield Bond ETF (ANGL) vs. Morningstar Active High Yield Bond Universe

(Click to enlarge) Source: Morningstar. Data as of March 31, 2016.
This chart is for illustrative purposes only. Index performance is not illustrative of fund performance. Fund performance current to the most recent month end is available by visiting vaneckvectors.com/etfs. Historical information is not indicative of future results. Current data may differ from data quoted. Past performance is no guarantee of future results; Market Vectors Fallen Angel High Yield Bond ETF commenced on April 10, 2012. An investor cannot invest directly in an index. The results assume that no cash was added to or assets withdrawn from the Index. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown. The actively managed high yield bond category is represented by the Morningstar Open End Funds – U.S. – High Yield Bond category. See index descriptions below.

About ANGL

Market Vectors® Fallen Angel High Yield Bond ETF (ANGL), which seeks to track the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA), ranked at the top of the actively managed high yield bond category1 year to date and over multiple time horizons since its April 2012 inception.

Market Vectors® Fallen Angel High Yield Bond ETF received a five-star rating from Morningstar, as of March 31, 2016. ANGL was rated against 646 funds in Morningstar’s high yield bond category over the last three years. Past performance is no guarantee of future results.5 Additional resources and information on Market Vectors Fallen Angel High Yield Bond ETF (ANGL) »

ETFs is authored by VanEck thought leaders. VanEck is the sponsor of Market Vectors ETFs and is currently among the largest providers of exchange traded funds (ETFs) in the U.S. and worldwide. Market Vectors ETFs empower investors to help build better portfolios with access to compelling investment themes and strategies. Our ETFs span many global asset classes, and are built to be transparent, liquid, and pure-play reflections of target markets.

Authored by Meredith Larson, Product Manager, ETFs

IMPORTANT DISCLOSURE

1Source: FactSet. Data as of March 31, 2016. Represented by the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) and the BofA Merrill Lynch US High Yield Index (H0A0).

2Source: FactSet. Data as of March 31, 2016.

3Source: FactSet. Data from December 31, 2105 to March 31, 2016.

4Morningstar ratings: ©2016 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The peer group chart presents trailing total return percentile rankings against the Morningstar Open End Funds – U.S. – High Yield Bond category, which comprised 822 funds as of March 31, 2016.

5Morningstar ratings: ©2016 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar RatingTM based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. As of March 31, 2016, ANGL was rated against 646 high yield bond funds over the last three years. ANGL received a Morningstar Rating of 5 stars for 3-year rating. Past performance is no guarantee of future results.

Morningstar Open End Funds – U.S. – High Yield Bond category is comprised of open-end mutual funds with an investment objective to seek returns via significant exposure to low quality bonds, those that are either unrated or rated by a major agency as BB or lower.

Morningstar ETF – U.S. – High Yield Bond category is comprised of exchange-traded funds with an investment objective to seek returns via significant exposure to low quality bonds, those that are either unrated or rated by a major agency as BB or lower.

This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.

The indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees, or expenses that are associated with an investment in any underlying exchange-traded funds. Index performance is not illustrative of fund performance. Fund performance current to the most recent month end is available by visiting vaneck.com. Historical performance is not indicative of future results; current data may differ from data quoted. Indexes are unmanaged and are not securities in which an investment can be made.

BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) is a subset of the BofA Merrill Lynch US High Yield Index (H0A0), including securities that were rated investment grade at time of issuance. Performance and characteristics of the BofA Merrill Lynch US Fallen Angel High Yield Index (H0FA) are quoted throughout this material. H0FA is representative of the entire fallen angel high yield corporate bond market. H0FA does not represent the performance or yield of the Market Vectors Fallen Angel High Yield Bond ETF.

BofA Merrill Lynch US High Yield Index (H0A0) is comprised of below-investment grade corporate bonds (based on an average of Moody’s, S&P, and Fitch) denominated in U.S. dollars. The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the U.S. or a Western European nation.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates (”BofA Merrill Lynch”), indices, and related information, the name ”BofA Merrill Lynch,” and related trademarks, are intellectual property licensed from BofA Merrill Lynch, and may not be copied, used, or distributed without BofA Merrill Lynch’s prior written approval. The licensee’s products have not been passed on as to their legality or suitability, and are not regulated, issued, endorsed, sold, guaranteed, or promoted by BofA Merrill Lynch. BOFA MERRILL LYNCH MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE INDICES, ANY RELATED INFORMATION, ITS TRADEMARKS, OR THE PRODUCT(S) (INCLUDING WITHOUT LIMITATION, THEIR QUALITY, ACCURACY, SUITABILITY, AND/OR COMPLETENESS).

Fund shares are not individually redeemable and will be issued and redeemed at their Net Asset Value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called ”creation units” and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market.

An investment in the Fund may be subject to risk which include, among others, credit risk, call risk, and interest rate risk, all of which may adversely affect the Fund. High yield bonds may be subject to greater risk of loss of income and principal and are likely to be more sensitive to adverse economic changes than higher rated securities. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. The Fund’s assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will generally decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.

Fallen Angels Retain Their Halos in 2015

Fallen Angels Retain Their Halos in 2015

February, 2016

Fallen Angels Retain Their Halos in 2015 ETFs is authored by VanEck thought leaders. VanEck is the sponsor of Market Vectors ETFs and is currently among the largest providers of exchange traded funds (ETFs) in the U.S. and worldwide. Market Vectors ETFs empower investors to help build better portfolios with access to compelling investment themes and strategies. Our ETFs span many global asset classes, and are built to be transparent, liquid, and pure-play reflections of target markets.

Authored by Meredith Larson, Product Manager, ETFs

Performance Helped by Higher Credit Quality and Lower Energy Exposure

Fallen angels, corporate high yield bonds that were originally issued with investment grade credit ratings, proved more resilient than the broad high yield bond market in 2015.

Generally characterized by higher average credit quality than the broad high yield bond market, fallen angels outperformed by approximately 1.40%, as measured by the BofA Merrill Lynch US Fallen Angel High Yield Index (-3.24%) versus the BofA Merrill Lynch US High Yield Index (-4.64%). Higher average credit quality, lower average exposure to the energy sector, and higher average credit quality within the energy sector were main factors that helped fallen angels end the year ahead of the broad high yield bond market.

Less Weight in Exploration & Production

While the energy sector allocation among fallen angels increased in 2015 (from 4.3% to 13.3%) as the broad high yield bond market’s decreased (from 13.3% to 10.9%), it was fallen angels’ significantly lower yearend industry weight in exploration and production (E&P) that primarily contributed to outperformance. At 0.48%, fallen angels were less exposed to E&P than the broad high yield bond market, which ended 2015 with 4.89% in E&P, arguably one of the energy sector’s more vulnerable industries to the oil price collapse.

Declining oil and commodity prices had a greater relative impact on fallen angels’ 4Q 2015 performance, as fallen angels underperformed the broad high yield bond market by 74 basis points. While the energy sector grew from fallen angel entrants throughout 2015, none were E&P bonds. Furthermore, the fallen angel universe maintained its higher average credit quality, ending 2015 with 81.6% in BB-rated (below investment grade) bonds versus the broad high yield bond market’s 48.4%.

Sector Biases Drove Fallen Angel Performance in 2015

The main drivers of fallen angels’ performance relative to the broad high yield bond market remained consistent throughout 4Q and 2015. Based on average sector weights:

• Positive Influences
• Energy (underweight)
• Banking (overweight)
• Financial Services (overweight)

• Negative Influences
• Basic Industry (overweight)
• Healthcare (underweight)
• Media (underweight)

Sector Return Attribution (%):
Fallen Angels Relative to the Broad High Yield Bond Market

(Click to enlarge) Source: FactSet. Data as of December 31, 2015. Past performance is no guarantee of future performance. Top and bottom five sector attribution of the BofA Merrill Lynch US Fallen Angel High Yield Index for fallen angels versus the BofA Merrill Lynch US High Yield Index for the broad high yield bond market. Figures are gross of fees, non-transaction based and therefore estimates only. Past performance is not indicative of future results.

Attribution represents the opportunity cost of investment positions in a group relative to the overall benchmark.

While fallen angels had lower average energy exposure in 2015, fallen angel bonds from two energy sector issuers entered the index in January, increasing the allocation to 14.4% versus the broad high yield bond market’s 10.4%, as of January 31, 2016.

What are Fallen Angel Bonds?

Watch this educational video on fallen angel bonds and the investment opportunities they may offer.

”…In a way, fallen angel investing is a contrarian strategy. You’re buying bonds that have crossed over from investment grade to high yield and that have seen a lot more selling than buying in the months leading up to the crossover.”

Learn More About ANGL

Additional resources and information on Market Vectors® Fallen Angel High Yield Bond ETF (ANGL) »