Emerging markets global local currency is a popular choice for many investors right now, having drawn some of the largest inflows over the course of 2017.

With local economies doing well, the local currency space in emerging markets appeals to investors seeking high yields in the debt market.

According to Citywire Discovery data, EM local currency debt has received the second biggest estimated net flows of all asset classes over the year-to-date to the end of October 2017, drawing a huge £11.57 billion.

But in terms of performance, which active managers are running ahead of their peers?

Of the 24 managers and 22 funds in the asset class registered for sale in Switzerland and tracked by Citywire, the average manager’s total return is -3.8% over three years to the end of October 2017.

Here’s a closer look at the sector frontrunners.

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3. Daniel Moreno, Rubrics*

Fund managed: Rubrics Emerging Markets Fixed Income UCITS H CHF

Total return over three years: 5.5%

Citywire A-rated Daniel Moreno is among the sector leaders for his outperformance on the Rubrics EM fixed income fund over three years to the end of October 2017.

Moreno first started managing the Rubrics fund in 2014, taking over the management from Alia Yousuf.

According to the fund's October fact sheet, the key contributors to monthly performance were Argentina's sovereign debt and banks.

‘The sovereign, certain banks and state-owned entities were upgraded one notch this month by S&P, with the ratings agency citing Macri’s plans for economic reform as a key reason.’

Overall, 29.5% of the portfolio is in local currency, while 55.6% is in hard currency.

Of the non-USD foreign exchange exposure, 3% is in the Russian ruble, 2.1% is in the Brazilian real and 1.7% is in each the Argentinian peso and the Uruguayan peso.

* In November 2017, Moreno left Rubrics and joined Mirabaud Asset Management to oversee the Mirabaud - Global Emerging Market Bond fund.

Taking over the management of the Rubrics Emerging Markets Fixed Income UCITS fund is Citywire A-rated Steven O'Hanlon.

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2. Robert Neithart (pictured) & Kirstie Spence, Capital Group

Funds managed:

  • Capital Group EM Debt (LUX) B CHF
  • Capital Group EM Local Curr Debt (LUX) C CHF

Total return over three years: 5.8%

Generating the second largest returns in the EM local currency debt space is Capital Group Citywire + rated duo of Robert Neithart and Kristie Spence.

After 29 years with the group, Neithart is chairman of the fixed income management committee and manages a number of funds for the firm, covering global multi-currency fixed income, emerging market debt and global high income portfolios.

Spence is based in London and runs two emerging market debt funds at Capital Group, with a macro outlook to investing. She has spent 21 years at the firm.

The local currency fund has a large overweight in middle-tier ratings to the JPM GBI-EM Global Diversified index, with a total weighting of 10.1%. Even so, nearly three quarters of the fund is invested in investment grade.

Brazilian government BB-rated bonds forms the biggest holding in the portfolio at 11.3%, followed by the A-rated Mexico government at 9.6% of the portfolio.

In terms of regional breakdown, the fund is largely invested in Latin America and the Caribbean, at 37.4%.

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1. Thierry Larose, Degroof Petercam Asset Management

Fund managed: DPAM L Bonds Emerging Markets Sust B CHF Cap

Total return over three years: 9.3%

Running well ahead of the pack is Degroof Petercam manager Thierry Larose.

The Citywire AAA-rated manager launched the sustainable fund at Degroof Petercam in 2013.

According to the latest fund factsheet in October, valuations in EM local currency debt are still attractive on a medium-term horizon. However, the manager’s short-term outlook has become more neutral as he sees pockets of complacency and overcrowded positioning in some parts of the market.

‘The asset class is still benefiting from low cross-asset volatility and low core rates, but fears are looming that a persistent unwind of short USD positions could trigger crossover outflows from EM local currencies and, hence, a repricing of the EM currency risk premium.’

Over the course of the year, the fund's conviction positioning in certain South American countries (Chile, Uruguay and Argentina) and its exposure to the Indian INR have worked in its favour.

However, the fund was hurt by a relatively light exposure to East and Southeast Asia in general, with a focus on Korea, Thailand and Malaysia in particular.

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