Rohan Reddy, Director of Research, Global X ETFs, Chandler Nichols, Product Specialist, Global X ETFs, and Ethan Yoon, CFA, Senior Portfolio Manager, Emerging Markets Corporate Debt, Mirae Asset Global Investments (USA) LLC, explain the diversification benefits of adding emerging markets debt to U.S. fixed income portfolios.
US investors have been focused on rising yields as a result of tightening monetary policy. This increase in rates led to an increase in volatility and correlations in the fixed income markets. Emerging markets, however, may have lower levels of correlation to US markets, with each market driven by its own macroeconomic fundamentals.
In response to historically elevated levels of inflation, central banks around the globe reacted with tightening monetary policies last year. The resulting volatility in the markets left investors questioning whether traditional strategic allocations were appropriate and how they should proceed in 2023. Emerging markets took a different stance in which global macroeconomic trends affected their economies differently. Emerging Market economies continue to show signs of significant growth and play a significant role in structural, macro-level trends. Accessing the sovereign and corporate debt markets of these countries is one avenue of access to increase potential diversification and income within a broader, fixed income portfolio. Active management from professional and experienced portfolio managers within the ETF structure offer a set of potential benefits and may be an intriguing way to access this segment of fixed income markets.
Accepted for 1 CFP® / IWI / CFA CE Credit