The $4.4bn (£3bn) Luxembourg-based Sicav strategy aims to achieve excess returns relative to the benchmark JPMorgan Emerging Market Bond index over the long term. It invests mainly in dollar-denominated emerging market sovereign, quasi-sovereign and corporate debt, with a tactical allocation to local emerging market debt and currencies.
Mr Arnopolin notes the team “have had a consistent investment process and philosophy since the inception of the portfolio and we constantly adapt and refine our investment process according to changing market conditions”.
He explains the team adopt a fundamental approach that combines thematic macro perspectives with bottom-up individual country and currency analysis and technical considerations.
“Our macroeconomic assessment involves examining the growth outlook in major economies, geopolitical risks, and other factors that may be important for investing,” the manager says.
The team, as of the end of March 2016, held 380 positions in the fund, with the top 10 holdings accounting for just 16 per cent of the portfolio.
According to the fund’s key investor information document, the base share class sits at a risk-reward level of four out of seven with ongoing charges of 1.5 per cent.
For the five years to May 11 2016, the fund’s Base accumulation shares, rebased into sterling, delivered 49.2 per cent compared with the IA Global Bond sector average of 17.3 per cent, according to data from FE Analytics. Shorter term performance has also been consistently strong, with the share class delivering a 12-month return of 11.3 per cent to May 11 against the sector average return of 5.6 per cent, while year to date the fund has returned 9.1 per cent while the sector peer group has delivered an average 6.6 per cent.
Mr Arnopolin attributes the “consistent robust performance” to “our disciplined, team-driven and research-intensive investment process”.
EXPERT VIEW - Ben Willis, head of research and investment manager, Whitechurch Securities |
| In emerging market debt terms, this fund has produced superior performance over the years. Dollar strength and weakness is a key factor in the fortunes of emerging market debt and this fund has benefited from having the flexibility to move between dollar-pegged and local-currency bonds. This is an established fund with a decent track record and is worthy of consideration for those seeking exposure to the asset class. |
In terms of recent changes to the portfolio, he notes: “As oil prices have come off their lows, we increased our exposure to selective credits, including African external debt names that have been battered in the lower oil price environment. While China’s slowdown will continue, there is no imminent crisis. However, we have increased our China CDS (long protection/short risk) position as a hedge as we remain concerned around deteriorating fundamentals and rising debt levels.”
The team’s largest sector allocation in the fund is to external sovereign debt at 63.8 per cent of the portfolio, with the next largest to external corporate debt at just 12 per cent of the fund.
In terms of credit quality, the fund’s largest exposure is to BB-rated bonds at 32.8 per cent of the portfolio, while BBB-rated credit accounts for 29.2 per cent. Perhaps surprisingly, the fund’s regional bond allocation shows some exposure to North America at 4.7 per cent and a further 0.5 per cent in Western Europe compared with the benchmark index’s zero weight exposure to these regions. However, it is the fund’s positions in Latin America that have provided a positive boost to performance, according to the manager. The portfolio held 44.2 per cent exposure to Latin America, as of the end of March, compared with the benchmark weighting of 37.3 per cent, according to the fund factsheet.
In particular, Mr Arnopolin highlights the fund’s exposure to Argentina external debt as a key contributor to the positive performance. Meanwhile, an underweight position to Lebanese external debt versus the benchmark also provided a positive boost for the portfolio.
“Our long in the Russian ruble also contributed to fund performance as commodity prices lifted. The overweight off-benchmark position in Brazilian local rates also positively contributed, with Brazilian assets rallying on the back of the country’s political developments,” says the manager.
