The third quarter of 2025 proved to be a strong period for the Virtus Stone Harbor Emerging Markets Debt Income Fund, with its Class I shares delivering a notable 5.06% return. This performance surpassed the benchmark J.P. Morgan EMBI Global Diversified Index, which recorded a 4.75% return over the same timeframe. The positive results were broad-based, encompassing various segments of emerging markets debt, including hard currency sovereign bonds, hard currency corporate bonds, and local currency debt. This widespread growth highlights a resilient and dynamic environment within emerging markets fixed income during the quarter.
During the third quarter of 2025, global financial markets were keenly focused on the Federal Reserve's monetary policy decisions. A significant development was the 25-basis point rate cut implemented by the Federal Reserve in September, a move that recalibrated investor expectations and influenced asset valuations across the board. This policy adjustment played a crucial role in shaping the investment landscape, particularly for interest-rate sensitive assets like emerging markets debt.
Within the emerging markets debt universe, several nations showcased exceptional performance. Venezuela led the pack with an impressive total return of 21.51%, indicating a substantial recovery or renewed investor confidence. Following closely, Lebanon posted a strong 17.18% return, suggesting positive shifts in its economic or political outlook. Bolivia also demonstrated robust growth, achieving a 15.57% total return. These top-performing countries significantly contributed to the overall positive results seen in emerging markets debt for the quarter, underscoring the potential for high returns in specific, albeit sometimes volatile, regions.
The strong performance of the Virtus Stone Harbor Emerging Markets Debt Income Fund in Q3 2025, alongside the positive trends in emerging markets debt, reflects a period where strategic investment decisions and a favorable market environment converged. The Federal Reserve's rate cut provided a supportive backdrop, while select emerging economies delivered substantial returns, affirming the sector's potential for significant gains.
