PA ANALYSIS: The only way is up for EMD?

Invesco Perpetual’s new Global Emerging Markets Bond Fund seems to be well timed to take advantage of investors’ broad structural underweight to the asset class.

Portfolio Adviser

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While the past couple of years have seen investors favouring developed markets as the rewards in emerging markets failed to warrant the levels of risk taken, investors then ran further scared in the run-up to the US election, hauling their money out of the riskier economies.  

Yet emerging market bond funds may be out of the woods. Morningstar recently reported that funds invested in hard currency got a “significantly larger chunk” of net new money across Europe than local currency funds, which still managed to take in net sales of €380m (£324m) last month.

City Asset Management’s fixed income analyst Adam Barber said it was easier to launch a product into an asset class to which investors were largely underallocated, rather than at its height of popularity.

The Invesco Perpetual fund will be run by Stuart Edwards and Asad Bhatti as an unconstrained mandate, with no benchmark. It will bring together ideas from sovereign and corporate credit, hard currency as well as local currency markets to take advantage of some of the interesting “idiosyncratic” investment stories available in the emerging economies.

Barber said selected value opportunities were starting to appear in the asset class and while Invesco Perpetual’s credentials in emerging market debt (EMD) had not seen it become a household name, its fixed income experience was significant.

“Having a lot of sovereign analysts is key to success in this area,” he added.

“Often houses launching new versions of more constrained EMD mandates are now looking further afield to generate total returns – investing across local and hard currencies, sovereign and corporate credit in order taking advantage of the structural stories.”

According to FE data, the IA Global Emerging Market Bond sector delivered 22.5% over one year and 28.1% over three years and longer term, over five years, it has gained 22.1%.

Currently Pimco Global Investors Series (GIS) Emerging Markets Bond tops the peer group over 12 months, having delivered a 32.4% return. Over the longer term, BNY Mellon Emerging Market Corporate Debt is topping the table with 74.5%.

 

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