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EMD high-flyers: the top three managers revealed

EMD high-flyers: the top three managers revealed

Emerging market hard currency debt has attracted some of the biggest inflows this year, as many investors turn their attention to the asset class in search of opportunities in the debt market.

According to Citywire Discovery data, EM hard currency debt has received CHF 9.03 billion in estimated net flows over twelve months to the end of July 2017.

When investment professionals and fund selectors gathered in Gstaad for the Citywire Switzerland 2017 Retreat, they revealed a positive stance on emerging markets in general in response to a survey on allocation outlooks.

Echoing the flows, the Swiss selectors named emerging market debt as the area they were most likely to add exposure to in fixed income.

But which active managers are leading the way in the EMD hard currency space?

Out of 42 managers and 30 funds in the asset class, the average manager's total return is 7.2% over three years to the end of August 2017.

Let’s take a look at the sector frontrunners.

3.      Morten Bugge, Global Evolution

Fund managed: Global Evolution Funds - Frontier Markets R CHF

Total return over three years: 14.1%

As co-founder and CIO at Global Evolution Fondsmaeglerselskab, Citywire + rated Morten Bugge is one of the most successful EMD hard currency managers navigating the market over the past three years.

Launched in 2012, his frontiers market fund is 25.85% invested in bonds with more than a 7 year term of maturity and 16.59% in bonds of less than a year.

The Global Evolution fund returned 14.1% over three years in Swiss franc terms, while the benchmark BofA Merrill Lynch BBB&Lower Sov Ext Debt TR CHFH generated returns of 13.21% over the same period.

2.      Luc D’Hooge, Vontobel

Fund managed:Vontobel Fund Emerging Markets Debt H (CHF)

Total return over three years: 14.4%

Luc D’Hooge, the Citywire AA-rated head of emerging markets at Vontobel, launched his EMD fund in 2013.

Speaking to Citywire Selector in September, D’Hooge said he occasionally plays interest rates but avoids taking big bets based on rate positions.

Rates will slowly rise but the EMD market has become so well traded and well informed that these changes are becoming less relevant, he said.

'I currently have an overweight on spread duration but no overweight on interest rate duration. We hedge it partially and sometimes we even over hedge it.

'Currently, I am below the benchmark in interest rate duration and that’s where the fund has been for the last few years,' the Vontobel investor said.

Over three years to the end of August 2017, the fund returned 14.4% in Swiss franc terms, which compares with the benchmark Cust Index JPM EMBI Global Diversified CHFH’s performance of 12.25% over the same period.

1.      Claudia Calich, M&G

Fund managed: M&G Emerging Markets Bond CHF A Acc

Total return over three years: 25.8%

Topping the board in emerging market hard currency debt is M&G’s Claudia Calich.

The manager joined M&G in October 2013 and has managed the £586.62 million EM bonds fund ever since.

At least 70% of the fund is invested in bonds issued by the governments, government agencies and companies of emerging market nations. The modified duration of the fund is 6.1 years. In terms of the maturity breakdown, 29.1% of the portfolio is in 7-10 years and 20% each in 15+ years and 5-7 years.

The fund is largely invested in US dollars, with 63.6% of the fund invested through the currency.  

The M&G fund returned an impressive 25.8% over three years to the end of August in Swiss franc terms, while the benchmark JP Morgan EMBI Global Diversified TR delivered a return of 22.33% over the same period.


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