December 22, 2017

Emerging Market Debt Funds Experience Strong Positive Net Flows for 2017

by Patrick Keon

The Thomson Reuters Lipper Emerging Market Hard Currency Debt Funds (EMD) and Emerging Market Local Currency Debt Funds (EML) peer groups have taken in over $12 billion of net new money for the year to date. The EMD group has grown its coffers by $9.3 billion, while EML is up $3.1 billion. The positive net flows for EMD funds represent the group’s largest annual increase since 2012, while those for EML are its largest ever.

As the U.S. dollar weakens, investing in emerging market debt funds becomes more attractive. Not coincidentally, the value of the trade-weighted U.S. dollar index has fallen this year. The index measures the value of the U.S. dollar relative to a weighted average of the currencies of the United States’ major trading partners. Therefore, a decline in the index makes ex-U.S. investments more attractive. The index is down 6.60 points to 89.12 for the year to date as of December 15, while money has been flowing into the emerging market debt peer groups. Conversely, when emerging market debt funds were suffering net outflows for three straight years (2013–2015), the trade-weighted U.S. dollar index appreciated 20.7 points (from 73.6 to 94.3).

At the fund level the largest individual positive net flows for the emerging market debt funds peer groups have been into a mix of mutual funds and ETFs. Four different products have recorded net inflows over $1.0 billion this year: iShares JPMorgan USD Emerging Markets Bond ETF (EMB, +$3.5 billion), VanEck Vectors JP Morgan Emerging Market Local Currency Bond ETF (EMLC, +$1.8 billion), PowerShares Emerging Markets Sovereign Debt Portfolio (PCY, +$1.1 billion), and Fidelity New Markets Income Fund (FNMIX, +$1.1 billion).


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