Investments  

Fund review: SLI unconstrained EMD

Fund review: SLI unconstrained EMD

A fourth strategy, the Emerging Market Debt Unconstrained fund, has been added to the suite of EMD products offered by Standard Life Investments.

The new fund will complement the existing emerging market hard and local currency debt funds, which have produced top decile across its peer group performance since inception, as well as the emerging market corporate bond Sicav which has produced twelfth percentile performance since it began.

The managers of the fund, Richard House and Kieran Curtis, will adhere to the company’s ‘Focus on Change’ investment philosophy, under which they have the option to invest in more than 70 countries.

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This investment approach is irrespective of a benchmark weighting, and is highly selective when choosing from various segments of the EMD asset class. This approach allows for maximising the risk-adjusted returns to build a diverse portfolio within a risk controlled framework.

Mr House said that EMD asset allocation decisions have become more complex as the opportunities in EMD have grown significantly to now include over 70 countries across three distinct subsets – hard and local currency sovereign debt plus hard currency corporate bonds. He believes that this has rendered investors less willing or able to monitor and assess the merits of each subset, so therefore devolving responsibility to a manager who adopts an unconstrained approach is the most effective way of exploiting the best opportunities that exist across the subsets of the asset class within a single portfolio.

The fund has a 1 per cent ongoing charge.

uk.standardlifeinvestments.com

Comment:

The EMD space has experience varied activity as of late, as the sector includes a diverse body of countries with varying performance. Countries like Russia have experienced a downturn, while India has continued to grow.

Part of the reason for this range of performance is that different countries within the sector have different vulnerabilities. For example, when the oil prices fell, net importers like China and India benefited, while net exporters like Russia and Venezuela suffered. While quantitative easing in developed markets initially gave emerging market economies a welcome boost, that effect has largely worn off.

Despite the slowing performance in some areas over the past few months, emerging markets should not be pushed aside just yet. According to the International Monetary Fund, the emerging market economies account for 39 per cent of world GDP, compared to the US at 22 per cent, Japan at 8 per cent, and other advanced economies making up 32 per cent.

These developments make it an interesting time for Standard Life to expand their emerging markets debt range. The company was motivated by the fast that as EMD continues to grow as an asset class, becoming broader and deeper, more countries and companies choose to access debt markets for funding.

The performance of this offering will hinge on the regions in which the fund managers choose to invest. The unconstrained approach will offer greater flexibility for the managers to adapt to developments within the sector, as well as frees the obligation of following a benchmark asset.