A blended approach to Emerging Market Debt

As more investors look outside traditional government bonds in order to generate a reasonable yield in what is a historical low-yielding environment, Emerging Market Debt (EMD) has been a significant beneficiary of the reallocation. But our research suggests that many investors looking at the EMD space might be missing the diversification they are seeking by adhering to an approach that risks remaining, in large part, correlated with traditional fixed income portfolios. Our analysis indicates an allocation to blended factors could offer superior longer-term risk/reward outcomes. 

Over the last decade, we have seen the EMD asset class grow significantly in size as more issuers have come to market which in turn has increased the opportunity set available to investors. And in the last year in particular, there have been significant inflows into the asset class. In spite of this, yields for EMD remain significantly elevated in comparison to their developed market peers, and in line with their longer term historical averages.

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