The aim of the $1.03bn (£656m) Investec Emerging Markets Corporate Debt fund is to invest in a diversified range of corporate debt opportunities across the entire emerging market universe, with the objective of outperforming the market across a rolling three-year horizon.
The fund is based in Luxembourg and is managed by Peter Eerdmans and Victoria Harling, with a focus on adopting a disciplined and systematic investment approach to analysing the market.
Ms Harling points out: “One of the key aims we have on the strategy is to try and minimise credit losses, which is one of the biggest issues with investing in corporate bonds. We analyse and follow companies in a lot of detail, and we regard ourselves as benchmark aware. [But] we will take positions regardless of their weight or inclusion in the benchmark.”
The process starts with the use of a proprietary in-house quantitative screen of the universe that flags up value. Once opportunities are identified, the team analyses interesting companies to create a concentrated coverage list of roughly 200 corporates at any one time, from which it cherry-picks using its scorecard methodology.
She explains: “[This is] to try and invest in what we regard are the top 60-100 opportunities at that point in time. I would say the process itself and philosophy has not changed in any way, [although] we continue to evolve and enhance the process. We scrutinise everything we do, which has led to the tweaking of models and scorecards rather than implementing any fundamental changes. Self scrutiny is the best way to capitalise on past lessons learnt and improve returns.”
Macroeconomic factors play an important part in the process, with the manager suggesting that all emerging market companies are affected to some degree by economic factors, be it exchange rates, economic growth or regulation. Ms Harling notes: “We have a two-tier structure in our team, and we analyse companies from a global sector level. We have a team of global sector corporate specialists focusing on countries from all emerging market jurisdictions, so we can capture cross-border trends and key themes driving companies. The second tier is a team of regional macro specialists focusing on the specifics of each country.”
The manager points to regions such as Ukraine and Russia and even Argentina where macroeconomic and political factors have had a significant impact.
The US dollar A-accumulation share class has a risk reward-level of four out of seven and ongoing charges of 1.94 per cent, the key investor information document shows.
Since launch in 2011 to May 14 this year the fund has returned 24.01 per cent, compared with the Morningstar Emerging Market Corporate Bond index gain of 20.57 per cent. Meanwhile, 12-month performance has been 8.93 per cent, compared with the index gain of 9.79 per cent, according to Morningstar.
Ms Harling acknowledges: “It has been one of our most challenging beginnings to a year since launch in 2011. We came into the year long high-yield oil and gas and were also long Brazil. [On oil] we thought the market would look through, or react in a more moderate way, to the Opec [Organization of the Petroleum Exporting Countries] decision in terms of the outlook for some of these oil and gas companies. [But] what we saw was a lot of panic investing on short-term price movements.”
In terms of country specifics, the fund started the year overweight Brazil but the growing concerns over corruption allegations – particularly surrounding Petrobras – combined with a weak government resulted in a significant repricing of all Brazilian corporates.
But Ms Harling notes: “Once Petrobras released its results the market seemed to react very positively and a lot of Brazilian assets have since come back. Brazil has been a place where we did see excess value in spite of the ongoing investigations. Ultimately, we’re value hunters, but value has to be about understanding the company’s outlook for the next couple of years, forecasting returns. This is why we spend a lot of time doing fundamental analysis. You only have a true sense of value when you understand the fundamentals.”
EXPERT VIEW
Ben Willis, investment manager and head of research, Whitechurch Securities
This offshore fund has recently passed through its five-year anniversary and has gained traction with some investors. There is a lack of competition in this area, but comparing it with other emerging market debt funds shows it has produced the goods so far. Also, it has displayed less volatility than its emerging market debt counterparts, which may come as a surprise. In spite of this, the fund will have limited appeal due to its relatively narrow and specialist investment area.
