The JB Emerging Markets Opportunities Bond fund, which will be managed by Enzo Puntillo, offers investors exposure to emerging market sovereign and corporate bonds that are both hard and soft-currency denominated.
According to Mr Puntillo, head and chief investment officer of fixed income emerging markets at the asset manager, the fund invested in emerging markets where fundamental data indicated the country was reaching an “inflection point”.
Mr Puntillo said in seeking value, the fund took an unconstrained approach to credit ratings. He said the investment process started with the portfolio manager evaluating the fundamental research to identify countries at a turning point.
He added that once the countries are identified, the team compares fundamental data to valuations of the hard-currency or local-currency market at country level, before evaluating the attractiveness of each currency separately from the bond allocation. The Luxembourg-domiciled Sicav has a volatility of between 5 per cent and 7 per cent, will be supported by a 12-strong emerging market team and charges a management fee of 1.1 per cent a year.
The fund’s largest country positions in local currencies were in Brazil, Mexico and Poland, whereas in hard currencies the majority of exposure were in Indonesian and eastern European government bonds.
Provider view: Enzo Puntillo, head and chief investment officer of fixed income emerging markets at Swiss and Global Asset Management, said: “We focus on countries where changing fundamentals are not yet fully reflected in bond valuations. The opportunities and risks of emerging markets change over time, and both fundamental data and valuations can create earnings drivers for emerging bonds. Bonds, interest rates and currencies react differently to various influencing factors, necessitating individual analysis of each of these segments.”
Adviser view: Jason Butler, investment manager and branch principal of London-based Bloomsbury Financial Planning, said: “Like all active management promises, the rationale sounds plausible and enticing. There is, however, no empirical evidence that the costs and risks of either investing in emerging market bonds, whether on an active or passive basis, is adequately compensated by sufficient excess return. These guys might do great, but then they might not. A recent analysis of clean and dirty pricing of equity and bond funds shows that costs are still far too high. One for the bin I think.”
Charges: Management fee of 1.1 per cent a year.
Verdict: Because emerging markets are perceived to be less efficient than developed markets, active fund managers have been quick to praise the number of undervalued stocks available to investors. That point is now even more relevant after a difficult year for emerging market economies, although the issue remains that most active managers in this category have consistently failed to beat the benchmark after costs. According to some familiar with the sector, trading costs in emerging markets are significantly more expensive than transactions in developed markets, which means that the fund manager must deliver superior performance to break even. The unconstrained approach from an experienced emerging markets team is an interesting proposition, but the final call ultimately depends on how much your client would like to gamble.
