For the third quarter of 2022, DoubleLine Emerging Markets Fixed Income ETF (EMTL) returned -5.63% on a NAV basis.
For the quarter ended September 30, 2022, EMTL underperformed the JP Morgan Corporate Emerging Market Bond Broad Diversified Index. Emerging market (EM) sovereign and corporate bonds posted negative returns in the third quarter of 2022. We believe the negative performance was largely driven by higher US Treasury yields which came against a backdrop of hawkish central bank policy, high inflation, geopolitical uncertainty, and elevated rate volatility which has continued to weigh on investor sentiment. The portfolio’s underperformance was largely driven by duration positioning and asset allocation. In terms of duration positioning, the portfolio consistently maintained a longer duration than the index which negatively impacted performance as rates rose sharply. As for asset allocation, the portfolio was overweight EM sovereign and quasi-sovereign debt which significantly underperformed EM corporate debt over the quarter. The overweight allocation to Latin America, the worst performing region in the broader index, and a large overweight to investment grade credit, which significantly underperformed its high yield counterparts, also detracted from performance. In contrast, the portfolio benefitted from its underweight allocation to Asia which was the second worst performing region in the broader index.
Third Quarter Fund Positioning:
The duration of the fund decreased by 0.49 years to finish the quarter at 6.48 years.
Sector allocations generally remained constant although the portfolio did build a slightly larger cash position over the quarter.
Fund Positioning and Outlook:
Broadly speaking, DoubleLine expects global financial markets to continue to deteriorate through the fourth quarter of 2022. Global growth concerns, elevated inflation, and the prospect of faster tightening of monetary policy, which have hamstrung risk appetite in the first three quarters of the year, are all likely to persist. Year to date, the Federal Reserve has reinforced its hawkish rhetoric and increased the Federal Funds effective rate by 300 basis points (bps).1 Longer-duration EMFI credits have underperformed shorter duration credits during a period of significantly higher rates. As a result, EMFI corporates have broadly outperformed EMFI sovereigns year to date. The DoubleLine EMFI team plans to maintain its significant underweight to Eastern Europe while continuing to favor Latin America as the region stands to benefit from being an exporter of commodities and hard currency generators. In our view, risk appetite during the remainder of 2022 will continue to be driven by expectations around central bank monetary policy tightening, US dollar strength, global growth, and inflation concerns, as well as by spillovers from the ongoing Russia-Ukraine conflict. In our view, other factors include the energy crisis in Europe, China-Taiwan tensions, and the economic slowdown in China from its COVID-19-containment policies and stress in its property sector.
Country and Region Weights
United Arab Emirates
Cash & Accrued
Latin America and Caribbean
Africa And The Middle East
Cash & Accrued
Source: DoubleLine, State Street Global Advisors, as of September 30, 2022. Allocations are as of the date given and should not be relied upon as current thereafter
Basis Point (bps)
A unit of measure for interest rates, investment performance, pricing of investment services and other percentages in finance. One basis point is equal to one-hundredth of 1 percent, or 0.01%.
A commonly used measure, expressed in years, that measures a portfolio’s sensitivity to changes in interest rates
Developing countries where the characteristics of mature economies, such as political stability, market liquidity and accounting transparency, are beginning to manifest. Emerging market investments are generally expected to achieve higher returns than developed markets but are also accompanied by greater risk, decreasing their correlation to investments in developed markets.
J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified
A benchmark of US dollar denominated corporate bonds issued by emerging market entities. The index is an expansion of the J.P. Morgan Corporate Emerging Markets Bond Index (CEMBI). The CEMBI is a market capitalization weighted index consisting of US dollar denominated emerging market corporate bonds.
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