Why EM Debt?

Emerging markets (EM) debt offers a broad and differentiated opportunity set, with sources of risk and return that are underrepresented in a typical asset allocation mix. The asset class spans a wide variety of instruments from countries at vastly different stages of economic and political development. Idiosyncratic, country-level dynamics can matter as much as broad market forces, creating return opportunities that may be uncorrelated to traditional asset classes.

That heterogeneity also creates inefficiency. Each country brings its own political institutions, policy framework, economic structure and market dynamics. Information is often less plentiful and market access more complicated. For investors equipped to navigate that complexity, these inefficiencies can create mispriced risk and differentiated sources of alpha.

But capturing those opportunities, however, requires an investment process designed around the complexity and breadth of the asset class.

Our Approach

Start With the Opportunity Set. Our portfolios are not confined to the benchmark. The team canvasses 100+ countries for compelling investment opportunities. This broader universe allows the investment process to begin with where we see opportunity rather than where an index happens to allocate capital.

Understand the Fundamentals. Ideas are evaluated through bottom-up research focused on the relationship between fundamentals and valuation. The process is rooted in macroeconomic and political analysis to assess a country’s policy set and direction in which it is headed. We remain alert to “policy moments”, a catalyst that signal significant change in a country’s economic potential.

Invest in Risk Factors. Developing a country view is only the beginning. We next ask which underlying risk factor – currency, interest rates, sovereign and corporate credit spreads – looks mispriced relative to the fundamentals. Only then do we determine which instrument provides the desired exposure and what accompanying risks should be hedged.

Read the full ‘Thought Leadership’ article at the link below