Monthly Update: Van Eck Unconstrained EMD
Links to the other Candoris Monthlies:
DSM US, Global, EME Growth         Coho ESG US LC        PAM Senior Loans        VanEck EME       SIM US High Yield

 

Allocation between HC, LC and Corporates of the Unconstrained Emerging Markets Bond Fund over time

 

Good morning *|FNAME|*,

The month August was a bad month for Emerging Market Debt and for the The VanEck - Unconstrained Emerging Markets Bond Strategy, due to the pre election surprise in Argentina.  Resulting in an underperformence of 4.75% versus the benchmark (-5.7% vs -0.95%, Gross of fees in USD).

September has started positive with the strategy having an MTD outperformance of 1.34% (NET of fees in USD).


 
Click here for the latest commentary
- Presentation Van Eck Unconstrained EMD
- Van Eck Unconstrained EMD versus peers
- Factsheet
- Commentary
- Kiid's
-Webinar Replay of the August VanEck EMD

 

Impact of Argentina:
We had a significant overweight in Argentina, in our case in short-dated, liquid, external law bonds.
However, we remain profoundly bullish on Argentina, and remind that we cut our exposure significantly, including closing local currency, just before the setback, in order to be able to rebuild positions. We are not tourists in Argentina. The fund has had a mostly overweight exposure since its inception seven years ago. Put differently, the end of a slow August, with forced selling of bonds on the part of an overweight market, is not the time to pronounce the bather drowned. Markets overreact, and we see current levels as the opportunity of a lifetime (explained in more detail below). Just before the setbacks in Argentina, we should note, we closed all of our local currency and illiquid exposure, with the idea of being flexible if there were buying opportunities. We didn’t anticipate the event that triggered the sell-off, and obviously with a crystal ball we should have had no exposure for the month, and only then start to buy, but that seems unrealistic, and our plan was to be in liquid external-law bonds only, and to increase almost regardless of the outcome of the “Paso” (explained in complete monthly commentary).

Click here for the latest commentary

What happened, politically? 
Peronist Alberto Fernandez, whose vice-presidential candidate is market-loathed Christina Fernandez, won 47% of Sunday’s ‘Paso” over 32% for Macri. This makes the upcoming presidential vote a virtual lock for Fernandez, given the voting proclivities of the candidates who now fall out of contention. The first (and likely only) round of presidential elections takes place on October 27th. The outcome was extremely unexpected with no pollster coming close to the actual outcome. Respondents appeared to tell the pollsters what they wanted to hear.

What happened, market-wise? 
The Argentine peso declined by over 20%, and benchmark sovereign bonds saw prices drop from 20 to 25 points. Currently, the sovereign benchmark ‘21s trade at a price of 58, for a yield of 45%. Additionally, the entire curve is trading near the same price, implying a very high chance of default and restructuring with the market converging toward an expected recovery value. 

 

The Unconstrained Emerging Markets Bond Strategy seeks to identify undervalued opportunities through investments in emerging market debt securities issued in both hard and local currencies.
The Strategy was among the first to combine local and hard currency bonds in one unconstrained offering. Van Eck believes an unconstrained approach is important because idiosyncrasies exist, and country and currency selections are imperative. An unconstrained approach allows for tactical shifts based on market conditions. The investment process is based on a proprietary approach to assess an issuer’s ability to meet its debt obligations, seeking to exploit mispricings.

 

 

Having the mandate to be truly unconstrained, the possibility to take idiosyncratic positions and completely avoid large benchmark names allows the strategy to be truly active. As you can see in the graph below the strategy had a very low allocation to EMD LC in 2018 (10% at some point). In December the allocation to EMD LC increased to 40% and currently is slightly below 50%. Van Eck’s Unconstrained EMD strategy is a unique as it is truly unconstrained between the sub classes and it uses a unique bottom up approach. 

 

A truly active and unconstrained strategy

 

 

 

Van Eck Unconstrained EMD Composite data                             Van Eck Unconstrained EMD Fund Facts

Alpha

0.93

 

 

 

ISIN

IE00BYXQSF37

Beta

0.86

 

 

 

Benchmark

50% EMBI & 50% GBI-EM

Std Dev

8.04

 

 

 

Bloombergticker

VAUMUI1

UMC

87.05

 

 

 

Currency

USD

DMC

82.73

 

 

 

Asset Class

Fixed Income

Information Ratio

0.12

 

 

 

Type

Unconstrained

Tracking Error

4.30

 

 

 

Region

Emerging Markerts

Sharpe Ratio

0.32

 

 

 

Dividend policy

Accumulating


Data as of 31-7-2019 source eVestment

 

Investment Philosophy

• Experienced management: Dedicated management team is led by Eric Fine, who has spent significant time in the emerging markets and has nearly 30 years of emerging markets investment experience as a strategist and portfolio manage
• Bottom up process: Based on a proprietary approach to access an issuer’s ability to meet its debt obligations, the investment process seeks to exploit mispricings and identify undervalued opportunities.
• Ability to diversify: Increased ability to diversify exposure by currency, region, credit, maturity, and duration.
• Unconstrained strategy: Flexibility to invest across all emerging markets debt components: sovereign and corporates bonds denominated in local and hard currency; our historical allocation demonstrates this approach, as we moved from over 85% local currency to over 90% hard currency exposure over time.

Investment Process – key features of the fund

                                                                                 

Please click here for a more detailed presentation about the Unconstrained EMD strategy.

 

 

About Van Eck
A firm with active and passive experience

•34 employees currently managing over $47.7bn in AUM of which $6.5bn active($38.2bn passive):
•Emerging Markets Equity
•Emerging Markets Fixed Income
•Gold and Precious Metals
•Natural Resource Equity, Commodities, Energy
•Alternatives
•Guided Allocation

Clients include corporate pension plans, foundations and endowments, financial intermediaries, other institutions, and high net worth individuals.

 

* Performances are annualised. The latest data is still preliminary. Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate.. "This email is intended to be reviewed by only the intended recipient and may contain information that is privileged and/or confidential. If you are not the intended recipient, you are hereby notified that any review, use, dissemination, disclosure or copying of this email and its attachments, if any, is strictly prohibited. If you have received this email in error, please immediately notify the sender by return email and delete this email from your system."
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