InvestmentsMay 2 2013

Product review: Fidelity EM Local Currency Debt fund

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Investing in local currency emerging market bonds issued by sovereigns is the latest in a flurry of emerging market plays by Fidelity.

The Fidelity Emerging Market Local Currency Debt fund, which brings the firm’s emerging market debt (EMD) range to four funds, invests in countries such as Indonesia, Mexico, Poland, Russia, South Africa, Thailand and Turkey.

Management duties will be divided between Steve Ellis, who manages more than $1bn (£657m) in emerging market assets, and Hong Kong-based Eric Wong, who joined Fidelity from BlackRock last year.

Mr Ellis said emerging markets present investors with opportunities to obtain attractive levels of income away from the low-yielding realities of the developed world.

Despite acknowledging that emerging market local currencies have endured a rough time in the past few months, he said some currencies, such as the Mexican peso, were very competitive.

Mr Ellis also said the fund will avoid currencies that are growth-sensitive, like the South African rand and Brazilian real; in both cases these countries have a current account deficit.

The fund is a Luxemburg-domiciled Sicav. Minimum investment is $2,500 (£1,638) or $50 (£33) per month for the A share class. There is a $1m (£665,190) minimum for the Y share class. (UK exchange rate as at 17 April.)

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Fidelity has jumped on board the emerging market bandwagon by launching four EMD vehicles, including its latest offering that promises greater returns via the risky avenue of local currency exposure.

Last year investors poured more than £62bn into EMD as the JP Morgan Emerging Market Bond Index Global Core index grew by 18.62 per

cent. This has led many to speculate that, as a result of considerable inflows, the value EMD investments are now hard to come by.

Yields on local currency bonds issued by emerging market governments have fallen in the past year, but still offer significantly better value than UK corporate debt.

As emerging market nations struggle to boost growth, the risks behind local currency exposure mean investors should keep a close eye on the prospects of each currency listed in the fund’s portfolio.