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Guide to emerging market debt funds

Published by FTAdviser | Jul 12, 2012

Emerging market debt was historically a small part of bond markets, as primary issuance was limited, data quality was poor, markets were illiquid and crises were a regular occurrence.

However, since the advent of the Brady Plan in the 1980s, which saw loans to mostly Latin American countries that had defaulted on their debt converted into a variety of bonds, issuance has increased dramatically.

But what type of investor should be considering Emerging Market Debt funds? What drives the performance of these vehicles?

FTAdviser’s Guide to Emerging Market Debt funds tackles the different types of emerging market debt, the pros and cons of such vehicles and how long investors should hold on to such schemes for.

Answers supplied by Rob Drijkoningen, head of global emerging markets for ING Investment Management, and Brett Diment, head of emerging markets on the fixed income team at Aberdeen Asset Management.

  1. Q: What is emerging market debt?

    Debt instruments of emerging markets, known as emerging market debt, have evolved as an asset class over the last two decades.

  2. Q: What are the different types of emerging market debt?

    Emerging market debt can be distinguished into external and domestic debt.

  3. Q: What are the pros and cons of emerging market debt?

    A true stress test, solidifying the success of emerging market growth and reform momentum, was the financial crisis of the last decade.

  4. Q: What is driving the performance of emerging market debt?

    Endogenous factors such as higher productivity growth and favourable demographics have enhanced the catch up of emerging markets.

  5. Q: Which investors should consider emerging market debt?

    From an asset allocation perspective, emerging market bonds provide important diversification benefits to fixed income and equity portfolios.

  6. Q: What is the duration of emerging market debt funds?

    The duration of emerging sovereign bonds is about seven years, which is higher than developed market government and credit indices.

  7. Q: What is the credit quality of emerging market debt?

    An investor who is looking for credits of a particular quality finds plenty of opportunities within the emerging market debt space.

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Q1.  Currently, how is economic policy discipline achieved in emerging economies?

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Q2.  Which of the following is the largest segment of emerging market debt?

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Q3.  On average, by how much has total emerging market debt stock grown each year since 2002?

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Q4.  What does Rob Drijkoningen see as the most significant factor driving productivity growth in emerging economies?

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Q5.  No investment grade emerging market corporate has defaulted in a calendar year since before:

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Q6.  Which of the below is listed by decreasing average duration?

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