With US bonds still offering modest yields, investors are looking internationally to generate higher income at emerging market bond funds, notes Todd Rosenbluth, S&P Capital IQ Director of Mutual Fund Research, in Standard & Poor's Marketscope.

Typically, the higher the yield, the greater the credit or interest rate risk, yet we believe T. Rowe Price Emerging Markets Bond Fund (PREMX)—and its 6.1% 30-day SEC yield—offers a strong combination of performance, risk, and cost factor attributes. PREMX earns a 4-star rating from S&P Capital IQ.

The fund is lead managed by Michael Cornelius, a 26-year veteran at T. Rowe Price who has run the fund since 1994.

On a larger emerging market fixed income team, he works with two additional portfolio managers, Andrew Keirle and Samy Muaddi, and 13 emerging market sovereign and corporate bond research analysts.

Across 65 countries, fund management conducts qualitative and quantitative assessments on an issuer's creditworthiness, resulting in the formulation of a proprietary credit rating.

While a portfolio of 400-500 bonds is built based on bottom-up decisions, asset allocation across countries and regions is undertaken based on risk assessments. The fund is diversified across emerging market sovereign, emerging market corporate, and frontier market bonds.

Cornelius and team believe that emerging debt markets are inefficient, creating opportunities to spot undervalued credits. However, the fund's turnover rate, at 46%, is half that of the Lipper emerging markets hard currency debt funds, indicative of T. Rowe Price's patience.

In the three-year period ended March 24, the fund rose 2.9% on an annualized basis, ahead of the 2.4% for its Lipper peer group. Looking back over five and ten years, the fund outperformed.

Beyond past performance, the fund compares favorably on additional metrics used in the S&P Capital IQ ranking. The 30-day SEC yield of 6.1% is greater than the 4.3% average and the fund's exposure to investment-grade bonds (54% of assets) is higher than its peers.

The fund's average duration of 6.2 years is slightly above its peers' 5.8 average, though it is below the fund's JP Morgan Emerging Markets Bond Index.

In addition, the no-load fund has a 0.94% expense ratio that is lower than the 1.22% peer average. This, coupled with the below-average turnover rate, results in positive cost factors.

We think investors seeking out an emerging market bond fund should look more closely at this T. Rowe Price fund. It has a strong risk-adjusted track record under a long-tenured manager and below-average costs.

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