Quarterly 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


Good morning *|FNAME|*,

The VanEck - Unconstrained Emerging Markets Bond UCITS gained 4.13% in June, compared to a gain of 4.45% for the 50% JPM EMBI & 50% JPM GBI-EM  (Gross of fees in USD). YtD the strategy is up 9.89% vs 10.03% for the benchmark (USD and gross of fees).

Market Review: 
The Big Wheel Turns, Lower Rates

Interest rates down remains the big wheel turning ... but we think it is important to know whether they are down because of low infl ation (providing, to put it bluntly, excuses for Fed asset-price targeting), or because they herald a global recession countdown. If it is simply a repeat of all the post-global financial crisis/postquantitative easing (QE) interest rate rallies, we believe EM local currency (EMFX) could possibly do well, as should credit spreads (in USD) in our view. If, however, it is different this time, because the market starts to price in recession risks following the U.S. economy’s longest (and shallowest) recovery since WWII, then we believe EMFX may do poorly, even dramatically so, as it is the shock absorber for relatively open EM economies which are more vulnerable to the ongoing global trade slowdown. By the way, what we said above about EM local currency doing well in a typical post-QE scenario is highly suspect. Since the beginning of 2010, the GBIEM is up around 25%, whereas the EMBIG is up over 80%. One could make a case that low rates should mean a weaker USD; one could make a stronger case, in our view, that EM local currency could do poorly in a continuation of the recent goldilocks and weaken in a U.S. recession.

In addition, the “trade friction = rates down” cycle points, either way, to U.S. divergence—which drove EM asset prices seriously weaker in 2Q and 3Q of 2018. The trade-friction = rates down cycle (namely, that policies resulting in market uncertainty are compensated by a central bank that looks increasingly co-opted) seems self-reinforcing— the Fed cannot extricate itself from the asset price targeting framework (the Fed would call it the portfolio balance channel) it has gotten itself into. Moreover, trade weakness—it is manufacturing, we believe, particularly in Asia, that is weakest globally—is a challenge for open economies like those in the emerging markets, many developed markets, but not (relatively speaking) for closed economies like that of the U.S. The U.S. is still growing and is in its longest expansion (however shallow), since WWII. The U.S. Treasury 10-year in USD is approximately 1.96%, while Bunds in euros are -0.38%:may be losses for a euro risk-free bond?

Please click here to read the complete June 

Upcoming Webinar 

Emerging Market Bonds: Rally on Hold, but for How Long
Eric Fine, Portfolio Manager
Thursday, August 8, 2019 
5:00 PM (CEST)
Register for Webinar Now
Topics will include:
Market overview and recent trends
Trade tensions vs. loose monetary policy
Current positioning and outlook

This webinar is for financial professionals only and is closed to the public.

Click here for the latest commentary
- Replay April 30th Eric Fine EMD Webinar
- Presentation Van Eck Unconstrained EMD
- Van Eck Unconstrained EMD versus peers
- Factsheet
- Commentary
- Kiid's

Positioning update: 

We increased our hard currency sovereign and quasisovereign exposure, as well as local currency exposure, in Argentina. The main reason is that the nascent macroeconomic turnaround started to have a measurable positive impact on the government’s confi dence ratios, improving President Mauricio Macri’s chances of getting reelected in the fall. Macri’s out-of-the-box choice of moderate Peronist Miguel Angel Pichetto as his running mate can add votes and strengthen governance after the elections. In terms of our investment process, this resulted in the improved economic and politics test scores.

We also increased our local currency exposure in Brazil and Mexico, as well as hard currency corporate exposure in Mexico. In Brazil, the pension reform approval process appears to be on track, and once this is done the central bank would be free to implement several rate cuts. In terms of our investment process, this improves the country’s policy scores. In Mexico, we continue to have numerous longer-term concerns about the country’s macroeconomic and policy trajectories. However, Mexico is one of the few countries that stands to benefi t from China’s trade war with the U.S. In addition, Mexico’s central bank often shadows the Fed. Meanwhile, real rates remain very high, supporting attractive valuations, while the central bank’s latest statement was decidedly more dovish, opening the door for policy rate cuts in the coming months. In terms of our investment process, this improved the country’s technical and economic test scores.

More details on our changes and the rationale you can find in the June 


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.



Click here to watch the replay of the VanEck EMD Unconstrained webinar held at the 30th of April.

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. 


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

The VanEck Emerging market debt unconstrained can be seen as three asset classes in one
1 EMD HC, 2 EMD LC, 3 EMD Corporates. All three have their own risk/return profile and can perform very differently. 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














50% EMBI & 50% GBI-EM

Std Dev



















Asset Class

Fixed Income

Information Ratio







Tracking Error






Emerging Markerts

Sharpe Ratio





Dividend policy


Data as of 30-6-2019 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
•Guided Allocation

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



Best regards,



Candoris Strategies: www.candoris.nl
Candoris Fund solutions: www.candoris-fundsolutions.com


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