(PUB) Investing 2015

January 2 015

Morningstar FundInvestor

15

Markets Bond Index Broad Diversified, a corporate- only bogy.

Total Ret 1-Mo (Mo-End) Base Currency %

Total Ret 1-Yr (Mo-End) Base Currency %

Total Ret Ann 3-Yr (Mo-End) Base Currency %

Emerging-Markets Bond Funds

Ticker

Dreyfus Emerging Markets Debt Lcl Ccy

DDBAX AEMDX SHLMX PELBX ADLAX EMLAX HBMAX EMDAX

-7.52 -6.74 -6.68 -6.65 -6.40 -6.38 -6.29 -6.07 -6.07 -6.02

-10.65 -8.43 -8.55 -6.27 -7.26 -4.30 -4.92 -4.78 -6.21 -7.05

-0.62

Within the emerging-markets debt landscape, Russian sovereigns and corporates were already some of the hardest hit for the first 11 months of the year when the bonds, and the ruble, experienced steeper slides in the opening weeks of December. The table shows the 10 emerging-markets debt funds that shed the most for the trailing month through Dec. 31 . At the time of their latest holdings reports (September or November), these funds had between 10% and 22% invested in Russian debt. While two funds on the list focus on corporate debt, which is typically denominated in U.S. dollars and euros, the other three faced additional headwinds because of their focus on bonds denominated in emerging-markets currencies. So far this year, almost all emerging-markets curren- cies have lost ground next to the U.S. dollar. However, the ruble was down by much more than that. Morningstar analysts rate six funds in the emerging- markets debt category, and these funds sported exposures to Russian debt ranging from 5% on the low end for TCW Emerging Markets Income TGEIX to 21% on the high end for PIMCO Emerging Markets Bond PAEMX . So, it was no surprise to see the former hold up much better than the latter during the past month. PIMCO Emerging Local Bond PELBX held a lower stake in Russia ( 8% ), but this fund was hit harder because of its single-digit exposure to the ruble and stakes in other emerging- markets currencies. Dodge & Cox International Closing Dodge & Cox said it will close Dodge & Cox Inter- national Stock DODFX to new investors at the end of trading on Jan. 16 . “The soft close is designed to proactively ‘tap the brakes’ on the fund’s growth,” the firm said in a statement. “We believe this deci- sion is in the best long-term interests of the fund’s existing shareholders, as it allows us to have stable and balanced growth within the fund.” œ

Acadian Emerging Markets Debt

0.31

Stone Harbor Local Markets PIMCO Emerging Local Bond Aberdeen Emerg Mkts Dbt Lcl Ccy MFS Emerging Markets Debt Local Ccy HSBC Emerging Markets Local Debt Prudential Emerging Mkts Dbt Lcl Ccy Ashmore Emerging Mkts Lcl Ccy Bd Lord Abbett Emerging Markets Lcl Bd

-3.04 -1.12 -1.22 -0.58 -1.77

0.14

ELBIX

-0.34

LEMAX

Data as of 12/31/2014.

Years of weak growth in Russia’s oil-dominated economy left it particularly vulnerable to sanctions announced earlier this year. But the key destabi- lizing event in 2014 was the rapid fall of the price of oil, which had a negative impact on Russia’s fiscal budget and trade balance, as well as the value of the ruble. The situation intensified on Dec. 15 , when the ruble tumbled 10% in one day, prompting the Bank of Russia to raise its key interest rate to 17 . 0% from 10 . 5% . The main culprit was a murky transaction between the Central Bank of Russia and Russia’s largest oil firm. The central bank indirectly provided $11 billion to Rosneft to fund external debt repay- ments due before the end of the year. That stoked fears about the ability of Russian firms caught up in U.S. and European sanctions to repay or refinance the billions of foreign-currency debt due in the next two years. These firms, along with a number of local banks, are currently unable to issue debt on Western capital markets. If sanctioned firms are forced to repay (instead of refinance) their external debts, a large outflow of U.S. dollars would result in additional downward pressure on the ruble. Coming into December, Russian debt comprised roughly 8% of the hard-currency-focused JPM organ Emerging Market Bond Index Global Diversified, 6% of the local-currency JPM organ Government Bond Index-Emerging Markets Global Diversified bench- mark, and 5% of the JPM organ Corporate Emerging