Emerging Gains in New Markets

12/29/2015 10:00 am EST


Genia Turanova

Editor, Leeb Income Performance

Emerging market debt is always a relatively risky investment area, with higher yields the enticement for taking the chance, cautions Genia Turanova in The Complete Investor.

The challenges for the sector have been especially abundant this past year, what with lower oil prices, worries about Chinese growth, interest rate concerns, and turmoil in various countries.

This has made it especially crucial to focus only on high quality funds with top flight management. And on that score, Fidelity New Markets Income Fund (FNMIX) stands out for its careful approach, excellent management, and strong history.

Led by John Carlson since 1995, and rated four stars by Morningstar, the fund has outperformed its peers in four of the last five years.

It ranks in the top 7% of the category for the past 10-year period, the top 4% for the past five-year stretch, and the top 11% for the past three-year period.

Year-to-date, it’s also in the 11th percentile. Over the past 15 years its annualized return of 9.87% puts it in the top 28% of the group.

Yielding 5.1%, the fund invests mainly in US dollar-denominated sovereign debt, and to a far lesser degree, in corporate bonds issued by companies in emerging market countries.

It takes a top-down approach to research—assessing the big macroeconomic and sovereign debt picture—supplemented by fundamental analysis of specific bonds.

In seeking value, it considers both longer-term trends and short-term opportunities. It’s a measured approach that has served the fund well through several investment cycles, inspiring confidence that it can continue to meet whatever the world throws at it.

Still, emerging market debt has been a volatile sector and you shouldn’t ignore the risks no matter how attractive the yield. These include country-specific issues—both political and economic—and currency and regulatory risks.

On top of that are considerations common to all fixed-income investments, relating to interest rates, credit, and issuer risks.

The fund’s concentration on US dollar-denominated debt—generally viewed as safer—mitigates the risks somewhat but doesn’t eliminate them entirely. Fidelity New Markets Income fund remains our pick for investing in emerging market sovereign debt.

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