Emerging market debt (EMD) continues to be a top play for many investors looking for value and returns, and as the US dollar continues to weaken, local currency EMD mutual funds have been winning more inflows.
The asset class also remains the largest fixed income player in the Chilean pension funds’ playbook. Last month the BlackRock Emerging Markets Local Currency Bond Fund saw $42.7 million in inflows from the AFPs alone.
It’s no secret that when investing in emerging markets selection is pretty vital. With a number of low-rated developing countries issuing debt to take advantage of investor enthusiasm, manager discretion is as important as ever.
In this analysis we take a look at the top three local currency debt managers over the last five years out of Citywire’s pool of 159 managers.
These managers have managed to outperform the Bloomberg Barclays EM LC Govt-10%CountryCap TR USD, which returned 8.33% over the last five years ending May 31. The average manager in the sector achieved returns of 0.15% over the same period.
3. Daniel Moreno, Rubrics Asset Management
- Five-year total return: 18.98%
- Current fund: Rubrics Emerging Markets Fixed Income UCITS
The third-best performing manager in the local currency EMD field over five years is Citywire + rated Daniel Moreno.
Moreno's performance covers two periods, his time at EMD specialist EM Quest Capital and time managing the Rubrics Emerging Markets Fixed Income UCITS fund. He joined Rubrics in 2014 and has been running his current fund ever since.
His largest non-US dollar currency exposure, as of the end of May, was Mexico, followed by Brazil and Turkey.
In his latest commentary, Moreno, acknowledged the latest corruption scandal in Brazil as well as the US rate hike, but said that he expects the current positive mood for EM assets to continue well into the summer months, absent any external shocks.
2. Thomas Delabre, H2O Asset Management
- Five-year total return: 19.23%
- Current fund: H2O Multiemerging Debt
Citywire AA-rated Delabre takes second spot and likes his counterpart Moreno, Delabre's five year performs covers his time at H2O Asset Management, which he joined in January 2015, and his previous employer Amundi, where he managed the Amundi Funds Bond Global Emerging Local Currency fund from 2010 to 2014.
The H2O Multiemerging debt fund, which is distributed by Natixis, has delivered 18.34% in US dollar terms since the strategy’s inception in January 2015.
While the fund’s factsheet reveals very little in terms of regional or currency allocation, the fund is managed along H2O’s philosophy that ‘diversification is the most robust and most stable source of value overtime’.
1. Michael Hasenstab and Laura Burakreis, Franklin Templeton
- Fund: Templeton Emerging Market Bond Fund
- Five-year return: 23.84%
Topping the list is a manager that needs little introduction when it comes to investing in emerging markets, Michael Hasenstab, along with his co-manager Citywire + rated Laura Burakreis.
The duo’s $5.6 billion Emerging Market Bond fund has seen a strong lift in performance since the emerging market rally started mid-2016.
The fund invests in both hard and local currency, however the latter makes up more than 75% of the portfolio as of the end of May. Nearly 40% is invested in local currency government, agency bonds in investment grade and 36.89% is invested in non-investment grade.
The fund is also overweight three Latin American countries that make up its top three regional allocations: Brazil, Argentina and Colombia, making up 13.69%, 10.05% and 9.68% respectively.