The Case for Venezuelan Bonds

Within the mutual fund space, Venezuelan debt is most common in emerging-markets bond funds, which typically use the JPMorgan Emerging Markets Bond Index, or EMBI, as a benchmark. That index focuses on hard-currency (USD or EUR) denominated sovereigns and quasi-sovereigns and had a 2.6% stake in Venezuelan debt as of August 2017, down from 3.9% at the end of 2016. All six emerging-markets bond funds rated by Morningstar had at least a 0.5% exposure to Venezuela as of mid-2017 with higher weightings coming in around 5%-6%. Venezuelan debt pops up in some multisector, core, and nontraditional bond funds too, but in most cases it amounts to less than 0.5% of assets. More…