In focus
“Emerging market debt asset classes, particularly local
currencies, came out of the gate strong in the second
quarter, driven by central bank stimuli and favourable
monetary policy expectations”
weights ranging from 3 to 6 per cent
depending on the portfolio.
Assets in the IA Emerging Markets
“We like the asset class as it brings
Bond sector stand at £8.4bn today, with good diversification to our other
some 50 funds to choose from. This
fixed interest exposure and brings
compares with £2.4bn and 25 funds at
an attractive yield pick-up, although
launch in December 2013.
events in Argentina remind us all that
this is not without risk.”
Cautiously optimistic
Adrian Lowcock, head of personal
So what do the fund buyers think? Ryan investing at Willis Owen, says that
Hughes, head of active portfolios at AJ while his exposure to emerging market
Bell Investments, says his allocation to debt had been rising over the last 12
emerging market debt has been broadly months, he recently moved it back to a
stable over the last 12 months, with
more neutral position.
The long-termer:
Invesco Emerging
Markets Bond
Invesco Emerging Markets
Bond is the best performer
in its sector over the past
10 years, its gains of 161.04
per cent more than double
the 73.31 per cent made by
the average fund. Managers
Michael Hyman and Robert
Turner can invest in both
local and hard currency
debt, across the spectrum
from investment grade to
high yield bonds. In a recent
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[ SECTOR PROFILE ]
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note to investors, they said
that while funding conditions
in emerging markets are
not currently a concern, a
renewed move higher in the
US dollar or US rates “would
require close monitoring”.
“We are also mindful of
increased tariff volatility,
especially with China and the
negative impact that would
have on broader emerging
markets given current supply
chain logistics,” they added.
The fund is yielding 5.57 per
cent.
The all-rounder:
M&G Emerging Markets
Bond
Hughes and Hasler picked
out M&G Emerging Markets
Bond, due to its flexible
mandate. “We use M&G
Emerging Markets Bond
which gives us a blend of
hard and local currency
exposure and is managed
by the hugely experienced
Claudia Calich who is able to
tap into the wide expertise
that exists in the M&G team,”
says Hughes. Hasler adds:
PERFORMANCE OF FUNDS VS SECTOR AND INDEX
Name 1yr (%)
3yr (%)
5yr (%)
10yr (%)
Invesco Emerging Markets Bond 19.62
19.94 68.59 161.04
M&G Emerging Markets Bond 20.29 26.41 69.34 135.63
Ashmore Emerging Markets Short Duration -2.54 9.09 N/A N/A
IA Global Emerging Markets Bond 15.46 14.63 31.58 73.31
JPM GBI-EM Global Composite 20.06 20.2
30.07 73.03
Source: FE Analytics
“Emerging market debt asset classes,
particularly local currencies, came
out of the gate strong in the second
quarter, driven by central bank stimuli
and favourable monetary policy
expectations,” he explains. “This
provided investors with solid returns
across emerging market debt, with local
currency leading the way.”
“Calich is supported by
specialist emerging market
credit analyst, Charles de
Quinsonas, and they take
asset allocation decisions
across the emerging bond
markets. This approach
makes sense for many
investors, allowing them to
access the full opportunity
set of this market without
having to constantly move
their positions around.” The
fund is yielding 5.76 per cent.
It has made 135.63 per cent
over the past decade.
While Lowcock remains positive on
emerging market debt, he has become
more cautious given further US interest
rate cuts now look priced in.
“Emerging markets tend to do well in
periods of falling rates, but risks exist,”
he says. “These include the US-China
trade war and Iranian tensions, along
with currency volatility.”
The income option:
Ashmore Emerging
Markets Short Duration
For investors who are
specifically looking for
income, Hasler says an
interesting option is the
Ashmore Emerging Markets
Short Duration fund. Sitting
in the offshore Fixed Interest
Emerging Markets sector,
Hasler describes the $6.3bn
Luxembourg SICAV as a
relatively straightforward
fund which looks to buy
short-dated emerging
market bonds and hold them
to maturity. “The bonds will
be issued in hard currencies
(largely US dollars) and pay
attractive coupons, resulting
in a relatively high income
stream,” she says. “It is
likely to carry considerable
credit risk given that a large
percentage of its holdings
are usually in sub-investment
grade corporate bonds.”
The fund is yielding 7.23 per
cent and has made 31.98
per cent since launch in
September 2014.
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