InvestmentsNov 12 2015

Kames Capital looks to emerging markets

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Kames Capital has expanded its range of fixed income investment products with the launch of an emerging market bond fund

The Dublin-domiciled Kames Emerging Market Bond Fund will invest primarily in investment grade debt of emerging market sovereigns and corporates, mainly through hard currency.

A minimum of 80 per cent of the fund’s assets will be invested in emerging market bonds, while investment grade bonds will form 80 per cent of its holdings.

The fund will aim to outperform the JPM Emerging Market Bond Index Global Diversified IG.

Its base share class will be the US dollar, but there will also be euro and sterling share classes, according to the company.

The fund management will be led by Scott Fleming, who joined the investment firm in 2013 from Nuvest Capital where he was a fixed income portfolio manager covering developed and emerging market rates, credit and inflation portfolios.

He will be supported by Alex Pelteshki, who joined in 2014 from ING Financial Markets where he worked as an equity analyst and then a credit analyst on the banks sector.

Provider View

David Roberts, head of fixed income at Kames Capital, said: “Dislocation in emerging markets continues as investors seek clarity about US interest rate policy.

“Currently, all the headlines on EM inevitably focus on the negative stories about a crisis or defaults as cash flows out of the asset class. Looking beneath those headlines, there is a growing universe of solid investment grade EM issuers that are overlooked. Our fund intends to exploit those opportunities.

“The launch of our EMB fund completes Kames’ set of mainstream fixed income funds. While we continue to invest in EMB through other funds in our product suite, we believe there is now long term demand for this asset class and we want to allow investors access to Kames’ expertise in this space.”

Adviser View

Karen Cooper, partner IFA at Devon-based Clarity Wealth Management, said: “Most of our clients are either retiring or retired. They are typically cautious minded, so any talk of an emerging market fund is most likely to set the alarm bells ringing. They wouldn’t touch it with a barge pole because it is high risk.

“We have tended to work with discretionary fund managers. We trust them to construct diversified portfolios for our clients. I have no issue if a fund investing in emerging markets is included within a well diversified portfolio.

“We are not in the business of individual stock picking because we believe that financial advisers are not in the best position to make those decisions.”

She added: “I would say that a charge of 0.65 per cent is very competitive for an active fund.”

Charges

AMC of 0.65 per cent for B share class.

Verdict

Income funds have emerged as a popular solution for pensioners, but whether there is an appetite for a new fixed income EM bond fund remains unclear. Knowledge of the dangers when it comes to investing in emerging markets has increased, which is in part attributable to the widely documented Chinese market correction. On its own, it is difficult to envisage the product proving popular to pensioners – who are typically cautious with their investments. However, the product is not solely marketed to those at retirement. The potential for inflated rewards – compared with developed market bond funds – could appeal to investors who are able to weather potential losses.