Back in February, we wrote about the strong run the WisdomTree Emerging Markets Local Debt Fund (ELD) had put together, one of the standout performers in our fixed income lineup, riding a weaker U.S. dollar and steadily improving fundamentals across emerging markets (EM). That run has continued, but the story behind it has gotten more complicated. The conflict in the Middle East has added a real jolt of volatility to oil prices, and the market has responded by pulling apart what used to be a fairly uniform EM trade into something far more country-specific. In this post, we look at how ELD has performed since our last update, why emerging markets are becoming more differentiated, and how the fund is positioned for what comes next.

How Has the Middle East Conflict Changed the Picture?

Emerging markets are turning into more of a stock-picker's game again, or in this case, a bond-picker's game. Performance is increasingly driven by country-specific fundamentals rather than broad beta. Carry remains supportive across EM, but a firmer dollar and hawkish Fed expectations are weighing more heavily on the countries most tied to U.S. trade. The Iran conflict's effect on oil prices sharpens that split even further: oil-importing countries are facing renewed pressure on domestic inflation and external balances, while exporters are picking up a real tailwind from higher energy prices.

The global cyclical backdrop is still holding up reasonably well, with the consumer smoothing through the energy shock rather than buckling under it. Before the conflict began, EM fundamentals were stable and, in many cases, improving: growth had held up, monetary policy credibility was intact, inflation was trending lower, and external balances were well contained. The two swing factors now are energy prices and the Fed, and both are keeping uncertainty elevated and positioning light. We remain constructive on EM currencies, supported by that cyclical backdrop, but we're more cautious on EM rates given the increasingly two-sided risk to inflation and central bank policy. If the conflict is resolved, including a full reopening of the Strait of Hormuz, we'd expect a real risk rally as investors price in a lower-inflation environment. Until then, expect the market to stay selective.

How Has ELD Performed?

ELD has held up well through this stretch. Year to date (as of 7/15/26), the fund is up 2.16%, outperforming its benchmark, JPMorgan GBI-EM Global Diversified Index, by 43 basis points. The outperformance has continued despite the Middle East conflict, a noteworthy result given how much volatility oil markets have thrown at EM currencies and rates.

Figure 1: ELD Performance vs. Benchmark

Positioned to Weather the Volatility

We retain a strategic overweight to Latin American issuers relative to the index, with underweights in EMEA and, in particular, Asia. On average, Latin American issuers offer higher yields with better credit scores than their counterparts elsewhere in the index, and that gap has helped the fund's numbers hold up at a time when broad EM beta is telling investors less than it used to.

Figure 2: ELD Country Positioning Relative to Benchmark

Conclusion

The easy version of the EM local debt trade, buying the index and letting a weak dollar do the work, is behind us for now. What matters going forward is which countries can absorb an oil shock and a firmer dollar without their inflation or external accounts breaking down, and which can't. ELD's overweight to Latin America and underweight to Asia and EMEA reflect exactly that judgment, and it's showing up in the numbers: outperformance that held up even through the roughest stretch of the Iran conflict so far. We think staying selective is the right call until there's real clarity on the Middle East, and ELD is built for exactly that kind of market.