The Vontobel Emerging Market Blend Fund has been around since 2015, but has been run as a model portfolio.
The managers have been testing the strategy and building a track record, which, as it turns out, has been quite impressive, albeit over just a three-year timeframe.
Managed by the experienced Luc D’Hooge, with the help of Thierry Larose, Wouter van Overfelt and Sergey Goncharov, and the support of the wider, well-resourced emerging markets team at Vontobel, it is being described as their ‘best ideas’ offering.
The team already run a hard currency emerging market debt portfolio and an emerging market corporate bond portfolio. This new fund combines the two and will invest in hard and soft currency bonds: a sort of strategic bond fund for emerging markets.
The investment style is based on that of the other two funds – active, value contrarian. It uses value-based and event-based inefficiencies in government and corporate hard currency debt and local currency debt to find what the team deem to be the best opportunities.
There are no country restraints and the focus on fundamentals allows the team to invest in bonds not necessarily in the benchmark – as they say, a great company can sometimes simply be in the wrong zip code.
There are not many emerging market bond funds that combine hard and soft currency investments. M&G has one, as does Aberdeen Standard Investments, and a couple of others, so it is good to have more choice.
As a strategy, it takes away the need for advisers or investors to try to make the currency call themselves. Emerging market fixed income is complex enough, so leaving it to an active manager is not a bad shout. Currencies can make a huge difference to returns in the developing world, so it is a excellent opportunity for a good manager to really add some value.
The Vontobel fund is still relatively new and has not been tested in many different market scenarios, so it is still early days. Emerging market debt is also a very niche asset class and is not suitable for all investors.
Those that do invest may only want/need a small allocation, but it can be beneficial in terms of decent yields, diversification and lack of correlation.
I think the fund is quite interesting and one to watch, and one should meet the managers to find out more. It will not be every investor’s cup of tea, but could add some value in a more risk-tolerant portfolio.
Darius McDermott is managing director of FundCalibre