T. Rowe Price Grp., Inc. (MM) (NASDAQ:TROW)
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2 Years : From Dec 2011 to Dec 2013
T. Rowe Price is launching a new emerging-market corporate bond fund to capture the growth in these countries, but without betting on their currencies.
The T. Rowe Price Emerging Markets Corporate Bond Fund (TRECX) was announced Thursday. It will allow the asset manager to offer its U.S.-based retail clients a chance to invest in the next phase of growth in the developing world: companies. The fund was seeded with $11 million in capital.
"Governments in emerging markets have done so well, yields are so low ... that it is opening the doors for their companies to borrow significantly in the capital markets," said Michael Conelius, manager of the new fund and chairman of T. Rowe's emerging-market bond funds' investment advisory committee.
This year alone, issuance of these corporate bonds has topped $108 billion, according to Dealogic data.
The fund's launch comes at a time of marked uncertainty in global markets as fears of Greece's exit from the euro escalate alongside fears of a broader contagion affecting European banks and sovereigns. Investor confidence has plummeted, leading to a broad selloff in high-yield bonds, including emerging-market assets.
In emerging markets, currencies are the most vulnerable, Conelius said. So, the fund expects to have less exposure to them and buy debt denominated in dollars. In addition, he expects the dollar to stay strong in the coming years as the U.S. economy improves, the U.S. produces more of its own energy and Europe remains troubled.
Instead of a region- or country-specific approach, Conelius will use a theme-based approach that allows the fund to operate like a stock-market fund, picking up suitable companies anywhere in the world.
One broad call is that domestic consumers are driving growth in countries like China and Brazil. So retailers, mall operators, property developers, and even chicken and beef producers that issue debt become ideal candidates for the portfolio, Conelius said.
The fund plans to hold a lower-than-benchmark exposure to Russia since oil prices are on a downward path. Companies in India, especially domestic banks, also come under this category, he said.
He expects banks in India and other emerging-market countries may need to step up to finance the growth in their economies as funding sources from Europe dry up.
A note of caution, though, in trading emerging-market corporate debt is that the shallow secondary market makes it harder to sell these bonds at times of stress. Conelius plans to hold cash or quasi-sovereigns that can be traded quickly for such times.
-By Prabha Natarajan, Dow Jones Newswires; 212-416-2468; email@example.com