Venezuela is plagued by widespread hunger, skyrocketing infant mortality and 500% inflation. Yet its sovereign bonds are the best performers in emerging markets this year, delivering investors a return of 46% through September.
The government of President Nicolas Maduro continues to pay billions of dollars annually to service Venezuela’s debt, even as it is unable to import enough food and medicine, Yahoo reported.
The situation has polarized emerging-markets investors. Some large fund managers are doubling down on Venezuelan bonds for their high yield. Others are avoiding the country altogether, because they believe default to be inevitable.
Fidelity Investments owns at least $1.8 billion in face value of bonds issued by Venezuela and state-owned oil company Petroleos de Venezuela SA, or PdVSA, according to fund tracker Morningstar Inc. The asset manager’s emerging-markets fund, 7% of which is invested in Venezuelan debt, has returned 16.7% this year, about 3 percentage points more than comparable mutual funds, according to Morningstar.
The $6.2 billion T. Rowe Price Emerging Markets Bond fund had 7.9% of its assets in Venezuelan debt, mostly in PdVSA bonds due this year, and has returned 17.6% this year through Friday.
The government oil company, whose bonds account for about half of what is regarded as the country’s sovereign debt, in recent weeks asked owners of its near-term bonds to exchange them for debt maturing in 2020 but has struggled to persuade even half of the bondholders to swap.
Michael Hasenstab, who manages Franklin Templeton’s $42 billion Templeton Global Bond Fund, sold out of the oil-rich country’s debt in 2014. His fund has paid a price, returning just 1.89% this year.
“It’s a mystery to us how and why they chose to service their external debt,” Hasenstab said.
