EDF - TEI: Egyptian Currency Bet Is Interesting But Hesitant To Recommend Buying
2024-06-14 12:48:17 ET
Summary
- Templeton Emerging Markets Income Fund offers high income, exposure to emerging markets, helps protect assets against inflation, and provides liquidity.
- The TEI closed-end fund's past performance shows significant underperformance compared to peers, but the high yield helps offset share price losses.
- The fund uses leverage to boost yield, pays monthly distributions, and trades discounted to net asset value, but future performance is uncertain.
- The fund appears to have made a large unhedged bet on the Egyptian pound, which could pay off for it given the very high yield of the bonds and the IMF assistance.
- The fund might struggle to cover its distribution this year, as the fear trade seems to be pushing down emerging market bonds in the short term.
The Templeton Emerging Markets Income Fund ( TEI ) is a closed-end fund, or CEF, that can be purchased by investors who are looking to increase their exposure to emerging markets while earning a very high level of income at the same time. I have seen an increasing number of comments from readers who are looking to increase their exposure to emerging markets right now, and there are several good reasons to do so. One of the biggest is that emerging market debt can be one way to protect your money against the erosion of purchasing power that comes with inflation. However, as Claudia Calich at M&G Investments explains :
TEI: Egyptian Currency Bet Is Interesting, But Hesitant To Recommend Buying
Adding emerging market bonds to your portfolio can help limit erosion of your assets during inflation. And it allocates capital for new investments at the same time.
When you seek to protect your assets against inflation, emerging-market debt is probably not the first asset class to come to mind. It is true that a series of crises in foreign exchange and excessive price rises have marked the history of some countries and left scars on their collective memory. Yet with around twenty-five years’ experience in these markets, including several economic and political cycles, I can attest to the opportunities that this field offers to help protect your assets against inflation.