This week in our long-running head-to-head feature, we take a look at two of the best performers in the EMD space, the £93m M&G Emerging Markets Bond Fund and the considerably larger $6bn Pictet Global Emerging Debt Fund.
So is it time to take a look at the sector? John Ventre, head of multi-manager at Old Mutual Global Investors, is one fund picker who has been buying into local-currency emerging market debt, believing the asset class looks cheap relative to other bond sectors.
While in the 1990s there was a strong correlation between rising US rates, dollar strength and weakness in emerging market bonds, Ventre thinks things could be different this time around given that US rates are likely to peak at less than 3% in this cycle.
“If you’ve got 7% back home and a Brazilian bond yielding 10%, why take the risk, I’ll just come home and earn my 7%,” he says.
“However, if I’m only getting 2% back home, but I have a Brazilian bond that yields 12%, then nobody abandons that potential return for the safety of home base. That’s where emerging market bonds sit today. The amount of yield and the amount of value is effectively a margin of safety, which we don’t believe that allocators will abandon.”