New research reveals emerging gap in Australian fixed income portfolios
June 2025
New research from VanEck highlights a common misconception that could be short-changing Australian investors. Published today, the Emerging Strength: Why EM bonds are the future of fixed income report reveals the surprising strength of bonds from emerging market economies, and why they have outperformed developed market equivalents.
This strength is reflected in the performance of both passive and active ETFs in the fixed income/credit spectrum, with emerging market bondsi beating Australian hybrids, subordinated debt and corporate bonds (commonly considered the highest-yielding debt securities) to be the top performing fixed income asset class in Australia over one year and three years.ii
While emerging markets have long suffered the misconception of being “riskier” for investors, VanEck’s analysis, based on the Efficient Frontier framework and Sharpe ratio, revealed that an allocation to emerging market bonds could in fact help investors optimise their fixed income portfolios for better risk-adjusted returns.
Arian Neiron, CEO of VanEck Asia Pacific, said: “2025 has been marked by mass upheaval, and investors are having to challenge some long-held perceptions. The outperformance of emerging market bonds is not a new phenomenon, however geopolitical developments this year have brought alternative exposures into greater focus.
“To many, emerging markets are synonymous with perceived risk due to several crises in in Latin America, Asia and Russia throughout the 80s and 90s. However, these crises were resolved decades ago. The irony is that many of the negative characteristics commonly associated with emerging markets, such as highly indebted governments, gross budget deficits, and loose monetary policy, are more accurately attributed to developed markets – a shift that has become particularly pronounced in light of the US’ burgeoning debt.
“The superior risk-return profile of emerging market bonds reflects a new reality where the hegemony of developed markets can no longer be taken for granted. We have observed the fiscal prudence of many countries in the Asia, Latin America and Eastern Europe regions, which stand out for having low-inflation, stable currency environments conducive to sustainable growth. We are also cognisant that emerging markets are not a monolith, and countries that have demonstrated fiscal strength historically are not immune to monetary missteps. Taking full advantage of the opportunities in emerging markets debt, we think, requires an unconstrained active approach, and strategies like VanEck’s active emerging markets bonds ETF provide access to this market,” said Neiron.
The VanEck Emerging Income Opportunities Active ETF (EBND) is the top-performing fixed income ETF in Australia over the one-year and three-year timeframes.iiBenefiting from an actively managed, unconstrained approach, EBND invests in sovereign and corporate bonds denominated in hard and local currencies that are diversified by currency, region, maturity, duration and credit.
The Emerging Strength: Why EM bonds are the future of fixed income report can be downloaded here.
i As represented by the VanEck Emerging Income Opportunities Active ETF (EBND).
ii All data 31 May 2025, Morningstar Direct. Global Broad Category Group – Fixed Income. Past performance is not a reliable indicator of future performance.