Emerging market sovereign debt is becoming an increasingly popular allocation in investor portfolios. Confronted with such a diverse universe, fixed income investors have access to the dynamic approach and rigorous risk management framework provided by the Vanguard Emerging Markets Bond Fund, all at Vanguard’s characteristic low cost.
A bottom-up approach, focused on security selection and relative value opportunities
A proven track record of limiting downside risk
Designed for outperformance – without relying on overall market direction
Emerging market bonds can deliver investors a number of key features, including robust risk-adjusted returns and attractive yield generation within a credit portfolio. An active approach grounded in fundamental research, tight risk controls and seeking diversified sources of alpha can help consistently give investors these qualities from emerging market debt.
Watch this two-minute video to find out why.
US dollar denominated Emerging market sovereign bonds have become a significant segment of global bond markets in recent years. We believe the asset class can play a valuable role in client portfolios, offering strong risk-adjusted returns and attractive yields as well as diversification against traditional credit and equity risk.
It is an area teeming with opportunity – and the Vanguard Emerging Markets Bond Fund’s managers aim to achieve consistent long-term outperformance by identifying diversified sources of alpha while avoiding the potential for significant drawdowns, with a bias towards liquidity.
Sourcing the best opportunities to enhance yield while managing credit risk requires a flexible and robust approach that can allocate to fixed income securities of varying maturities, yields and qualities.
The fund’s benchmark is the J.P. Morgan EMBI Global Diversified Index, which promotes lower concentration than other funds in the peer group. The fund typically has 250-300 holdings, primarily across diverse emerging market sovereign bonds denominated in US dollars. However, it has the flexibility to invest in local currency and corporate bonds, and maintains liquidity to ensure it can capitalise on opportunities as they arise.
It is run by one of the largest and most experienced active fixed income investors in the world. Vanguard’s Fixed Income Group emphasises rigorous and consistent portfolio construction, driven by powerful quantitative tools and in-depth analysis to achieve highly controlled and cost-effective investment results for clients.
To help mitigate currency risk, the fund hedges returns back to sterling or euros through available share classes.
“Emerging market sovereign bonds are an increasingly popular holding within investors’ fixed income credit allocations because we believe the asset class presents some of the best opportunities for risk-adjusted, consistent alpha generation in global bond markets.”
Emerging markets lead strategist, Vanguard, Europe.
Benchmarked against the J.P. Morgan EMBI Global Diversified Index, which contains the same constituents as its parent index but spreads allocations more broadly across securities, which better aligns with our investment approach.
Our heritage in active fund management dates back to the year we were founded – 1975. For almost half a century we have strived to provide consistent returns while limiting downside risk.
Uses a dynamic and tightly risk-controlled approach to generate long-term, consistent levels of outperformance.
The fund is managed by one of the largest and most experienced active fixed income investors in the world.
Our teams are solely focused on our mutual fund range – not stretched across multiple investment vehicles or mandates.
Our scale helps us to provide value to investors with an ongoing charge of 0.60% versus an industry peer group average of 1.05%*.
* Source: Vanguard and Morningstar. Data as at 31 March 2023. The ongoing charges figure (OCF) refers to the Investor GBP hedged Acc share class. The OCF covers the fund manager’s costs of managing the fund. It does not include dealing costs or additional costs such as audit fees. Morningstar peer group average OCF for IA Sector = Global Emerging Market Bond - Hard Currency.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Past performance is not a reliable indicator of future results. The performance data does not take account of the commissions and costs incurred in the issue and redemption of shares.
Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.
Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.
The Vanguard Emerging Markets Bond Fund may use derivatives, including for investment purposes, in order to reduce risk or cost and/or generate extra income or growth. For all other funds they will be used to reduce risk or cost and/or generate extra income or growth. The use of derivatives could increase or reduce exposure to underlying assets and result in greater fluctuations of the Funds net asset value. A derivative is a financial contract whose value is based on the value of a financial asset (such as a share, bond, or currency) or a market index.
Some funds invest in securities which are denominated in different currencies. Movements in currency exchange rates can affect the return of investments.
For further information on risks please see the “Risk Factors” section of the prospectus on our website.
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