higher reward scenario. Rather, as Fine describes it, they result from deeper structural improvement among many of the major players in the developing market.
Underlying Fundamentals
According to VanEck, many EM countries have benefited from lower debt levels after running lower fiscal deficits than the U. S. and other developed markets. And because governments with manageable debt levels feel less pain making payments on that debt, their central banks are less constrained in hiking interest rates to combat inflation, and that leads to higher yields.
Many EM countries have also benefited from being commodities exporters, which provides them with dollars that help stabilize their local currencies and boost their status as dollar-based creditors.
Fine and his team at VanEck posit that the liquidity, default, and recovery rates of EM debt rival those of developed markets. He adds that many EM countries, particularly in Asia, are net external creditors while the U. S. is a large net debtor. Those surpluses strengthen the finances of many of those countries and help them produce solid risk-adjusted returns.
Yet it’ s a story that many investors ignore as they continue to look to developed markets for their bond exposure.
“ It’ s about diversification,” Fine says.“ Everyone is up to their necks in U. S. bonds, and it hasn’ t worked. Yet the image lives on that EM bonds are worse.”
A Familiar Movie
Fine’ s exposure to the international scene started from the get-go. His father, Sherwood, was with the Office of Strategic Services( the intelligence agency precursor
Portfolio Statistics
Number Of Holdings 131 Yield To Maturity 7.19 % Effective Duration
5.51 years Turnover Ratio 217 % Net Expense Ratio 0.76 %
Performance, asset numbers, holdings and portfolio stats as of 6 / 9 / 26. Turnover stat as of 12 / 31 / 25. Sources: VanEck and Morningstar.
Manager: Eric Fine Age: 60
to the CIA) in Turkey during World War II and later served as the chief economist and planner on Gen. Douglas MacArthur’ s staff in postwar occupied Japan.
Fine’ s mother, Shirley Mae, came from Kansas City, Mo., where her father worked in local politics and was a friend of Harry Truman. She began doing secretarial work for Truman when he was still a U. S. senator and she was 17; she later worked in the White House when he became president. After that she joined the U. S. Foreign Service and was stationed abroad in various countries during her 30-year career.
Eric Fine was born in France and grew up in Switzerland and Thailand before moving to the U. S. in his early teens. After getting his degrees from Duke and Harvard universities, he was involved in a Harvardrelated project that built Russia’ s first securities clearing system in the early 1990s.
For more than 30 years he has worked in the emerging market fixed-income space, first at Morgan Stanley and then at VanEck— the latter for the past 17 years. He has also advised various governments on economic policies and sovereign debt restructuring.
“ It’ s one of those jobs where you have to know a lot about the rest of the world, whereas you can have a long career in finance and know only about the U. S.,” he says.
Fine writes prolifically on the topic of EM bonds, and claims that VanEck was the first to talk about the concept of“ fiscal dominance.” This arises when high levels of government debt and deficits hinder a central bank’ s ability to deploy monetary policy to fight inflation. The need for governments to keep interest rates low so they can ease their financing
Professional Background: He is the portfolio manager for VanEck’ s active emerging market bond strategies, where he oversees asset allocation and security selection.
Outside Interests: Spending time with his family, reading and operating heavy machinery to clear trees on his property to build an ATV trail for his son.
can ultimately make inflation worse.
“ Whereas developed-market economists 15 years ago weren’ t telling you that their countries were going to suffer this fate, it’ s a movie I’ ve seen about 80 times because I’ m an emerging markets person,” Fine says.
Turning Point
Fine is passionate about this asset class and refers to the countries in the VanEck Emerging Markets Bond ETF’ s portfolio as“ my countries.”
He says the 1997 Asian financial crisis that began in Thailand and hit much of Southeast Asia marked a huge turning point in emerging market debt because it fostered reforms that whipped nations such as Thailand, Indonesia and South Korea into financial shape.
“ They’ re the best graduates of capitalism,” Fine exudes.“ They have orthodox fiscal policy. Most of my countries don’ t have high levels of debts and deficits, and as a result their central banks can maintain high real rates, because if the debt was too high they’ d bankrupt the government.
“ Most of my countries have governments that are popular and doing the tough love,” he continues.“ They’ re making sure their kids eat their broccoli every day. There’ s strong support for governments that aren’ t harassing their central banks to achieve political objectives that are popular at the moment.”
Objectively Subjective
The VanEck fund’ s portfolio is positioned across sovereign and corporate debt, and it’ s denominated in either local currencies or hard currencies such as the U. S. dollar or other developed market cur-
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