Edwin Gutierrez, senior investment manager, explains that the team focuses on the entire emerging market debt universe to maximise the return potential of its funds.
While the team is “aware” of its benchmark, the JPM EMBI Global Diversified index, he insists that it does not drive investment decisions in the portfolio.
PROCESS:
Mr Gutierrez describes Aberdeen Asset Management as having been at the “forefront” of investing in the emerging debt markets since 1993, with an investment process that draws on their experience and skills.
“We believe in ‘independent thinking’, by conducting our own bottom up, fundamental research and focusing on forward-looking measures of risk. Furthermore, we are a high-conviction manager, not averse to taking large underweight positions or off-benchmark exposure in our funds,” he says.
In this fund, comprehensive country research forms the ‘foundation’ of the investment process, taking into consideration macroeconomic variables such as the political environment, fiscal and monetary policy developments and major risk. This is coupled with analysis of technical market indicators, according to Mr Gutierrez.
He continues: “We research more than 60 countries and have more than 500 meetings each year. We also meet with local companies and banks, as well as local investors, independent economists and political analysts. This allows us to better gauge developments within each country.
“Our own research is key to our investment decisions, therefore we are not constrained by what is in the benchmark. We are cognisant of the benchmark however, in that we monitor any significant deviations to ensure that we control risk in our portfolio.”
With that in mind, the fund is level four on a risk and reward profile, while the ongoing charge is 1.65 per cent.
PERFORMANCE:
The outperformance of the fund since its launch is testament to Aberdeen’s team-focused approach to investing. In the three years to May 28 2014, the fund has returned 17.57 per cent, placing it top quartile in the IMA Global Emerging Market Bond sector, according to FE Analytics. In the past year, performance has fallen off to -1.98 per cent, although it remains top quartile against the average return in the sector of -10.67 per cent.
Mr Gutierrez observes: “The depth of the team’s experience in terms of their background, market experience and length of service in managing EMD portfolios is crucial and ensures that we can react quickly in the face of a rapidly changing investment environment.”
He reveals they made a number of changes to the portfolio in the first quarter of 2014. “We participated in the new 30-year US dollar bond from Romania and added some duration to the fund by purchasing the long-end bonds of Uruguay,” he explains.
“Towards the end of the period we sold out of the fund’s Ukraine position on fears that the bonds were not pricing in a potential escalation in its Russian dispute. We also reduced our Russian holdings and initiated a position in Belarus.”
In the local currency space, Mr Gutierrez says they introduced a position in Peru and sold Russian local bond holdings, while the portfolio’s exposure to the Indian rupee was reduced to target 2 per cent exposure. On the outlook for emerging markets and emerging market debt specifically, Mr Gutierrez is broadly positive following a tough period for the market.
“Considering emerging markets were one of the main beneficiaries of policy decisions by the US Federal Reserve and other major central banks since the financial crisis in 2008 it was always likely that the broader emerging market universe would suffer in the short term when accommodative monetary policy was eventually withdrawn. Today, however, the market has priced much, if not all of this risk,” he says.
Expert view
Ben Willis, investment manager and head of research, Whitechurch Securities: “The fund recently went through its three-year anniversary and has produced excellent relative returns versus the sector since launch. As per all Aberdeen funds, there is no star manager at the helm with the fund being managed by Aberdeen’s EMD Team. Given that EMD has had a terrible time in the past 12 months, the team produced exceptional relative performance versus the sector. This is a fund worthy of consideration.”
