John Peta took over as co-manager of this $107m (£75m) offering in April 2015, with Delphine Arrighi joining him in January this year. Prior to this the portfolio had been run by sub-adviser Stone Harbor Investment Partners.
Mr Peta explains: “The fund’s investment objective is to achieve asset growth through investment in a well-diversified portfolio of primarily local currency debt securities issued in emerging markets (EM). The fund is benchmarked against the JPMorgan GBI-EM Global Diversified index, which gives a true representation of the liquid local currency EM market and is widely used by our peers.”
The vehicle’s remit allows the managers to invest outside the index in instruments such as hard currency bonds, inflation-linked local currency debt and derivatives based on EM bonds.
Mr Peta confirms the investment objective and process remain unchanged, although they have added new countries to the portfolio and have updated some of the models they use as part of their process.
The manager says they capture opportunities in EM debt by first identifying the “key drivers”. He notes: “We develop both a mental and a quantitative model to forecast market direction and magnitude. We believe in expanding the opportunity set, because breadth of opportunity is needed in order to add the most alpha. We take a holistic approach, identifying the most attractive opportunities across the three risk factors of sovereign default, local rates and currency.”
He continues: “Through our analysis we review the key drivers of return and systemise them as much as appropriate. We also make forecasts and judgments of the relevant factors, including policy rates, inflation, and political risks.”
Analysis of local interest rates takes into account four factors: central bank policy, inflation, G3 interest rates and credit risk. Currency exposure is managed separately from interest rates, with the managers believing relative growth performance between countries is a key driver of currency returns. Mr Peta says:“When EM growth is positive and growth surprise is positive, EM currency returns are strong. When growth and growth surprise is negative, currency returns are negative. We monitor the data that is released in a variety of EM countries and take positions accordingly.”
EXPERT VIEW - Ben Willis, head of research and investment manager, Whitechurch Securities
|This fund has had a difficult time recently, though much of this can be attributable to the fact that it invests purely in local currency debt. The fortunes of the asset class in recent years have been correlated to US dollar strength and weakness and, therefore, US monetary policy. In relative terms, the portfolio has been on par with other local currency EM debt funds, but investors need to appreciate the nuance between this offering and a hard currency EM debt vehicle.|
Ongoing charges of 1.1 per cent apply to the clean I-accumulation share class, while the fund sits at the riskier end of the risk-reward scale at level five out of seven, the key investor information document shows.