Mexico faces near-term challenges regarding oil revenues, but the longer-term growth story is solid and Luc D’Hooge has added super long-dated debt to his $854 million fund.
D’Hooge is head of emerging market debt at Swiss group Vontobel and lead manager on the Vontobel Fund Emerging Markets Debt strategy.
In his latest market update, D’Hooge said he had turned his attentions to Mexican sovereign debt with maturities in the next century.
‘We invested in long-dated Mexican paper such as Mexico 2110 and 2114,’ he said. ‘We believe Mexican bonds sold off excessively on concerns about the reduction of oil-related revenues.
‘These revenues are certainly important for the government budget but after years of falling production, Mexico has become a net importer of energy.
‘Investing in Mexican bonds is a suitable way of benefiting from the pick-up in US economic growth, in our view, as the Mexican economy is strongly geared to that market,’ D’Hooge said.
D’Hooge has reduced overall exposure to Mexico from 9.5% at the end of February to 8.9% in the latest update. However, D’Hooge stressed this remains an overweight of 4.5 percentage points compared with the fund’s benchmark.
Elsewhere in the fund, D’Hooge has also adjusted energy exposure and sold out of US dollar bonds in Brazilian oil and gas giant Petrobras, while retaining euro and pound sterling-denominated debt.
The US exposure was switched to Colombia company Ecopetrol, which is a state-owned oil company. ‘Ecopetrol is trading at attractive levels after it had been hit by lower oil prices. In addition, it has less negative risk and much less leveraged credit risk.’
Mexico remains the largest country exposure ahead of Indonesia (6.6%) and Brazil (4.2%). The single largest bond position is a 3.5% allocation to an Indonesian bond maturing in 2021.BBB-rated bonds make up 23.2% of the fund exposure on a credit quality basis.
The Vontobel Fund Emerging Markets Debt fund returned 7.09% in US dollar terms over the period from launch at the end of May 2013. This compares with a rise of 8.8% by its Citywire-assigned benchmark, the JP Morgan EMBI Global Diversified TR, over the same period.