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DFMs are overweight emerging markets, but for how long?

One of the potential outcomes of the market turmoil which has toppled banks in recent days is the diminishing potential for US and UK interest rate rises from here. 

And while the impact of rate rises stopping, or slowing, from here, will be debated everywhere and felt in every possible asset class, one of the areas where the effect could be most profound is in emerging markets. 

With that in mind we thought we would have a look at the exposure of the DFMs we cover to emerging market debt funds.

As we saw in our recent analysis of DFM holdings of UK equities, DFMs are on average overweight emerging markets compared to the IA Global sector and the MSCI World index.

Our database shows the average exposure to such funds in the Balanced portfolios of the allocators we cover is 2.2 per cent, a figure broadly unchanged since the start of 2022. 

The DFMs with the largest exposures to emerging market debt funds in their Balanced portfolios are M&G Wealth, at 9.75 per cent, and LGIM at 9.5 per cent.

Many allocators have zero exposure to these sort of funds in their Balanced portfolios, such as Progeny and Invesco. 

The most widely owned emerging market debt fund among the allocators we cover is M&G Emerging Market bond fund.

This appears in the portfolios of eight of the DFMs we cover, followed by L&G EM USD Bond Index fund, which appears in the portfolios of five of the allocators in our proprietary database.

Whether these positions change over the coming months will be something we keep an eye on.

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