Emerging market debt

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Emerging market economies have quickly expanded to a point where they collectively contribute more to global growth than developed economies.

At Insight, we have designed a range of emerging market debt (EMD) capabilities that offer investors structural exposure to emerging markets across the full universe with varying degrees of alpha potential. Investors can access the opportunity set according to their risk/return preferences, exploiting attractive beta and alpha opportunities rather than relying on structural beta alone to drive returns, a feature which is typical of traditional benchmark-driven strategies.

Opportunity

The investment opportunity has evolved from a niche asset class to a global opportunity set spanning multiple countries at different stages of the economic and monetary cycle, across a range of sub-asset classes and instruments - including government and corporate debt in local or external currencies, derivatives and foreign exchange markets.

EMD map

EMD is gradually assuming more importance in investors' asset allocations as returns have generally outpaced those of traditional asset classes over the last decade.1 The breadth and depth of the asset class is sometimes overlooked despite this growth in prominence.

Our strategies

Emerging Market Corporate Debt 

Emerging market corporate debt has rapidly expanded into a varied and sizeable asset class, spanning many countries, issuers and sectors, each with their own distinct drivers. We believe the growth of the asset class and the diversity of the opportunity set qualifies emerging market corporate debt as a standalone allocation as well as forming an important component of global fixed income portfolios.

Insight offers investors access to this opportunity set through three investment strategies:

  • corporate investment grade debt
  • corporate high yield debt 
  • unconstrained emerging market corporate debt

We screen for the most compelling investment propositions across hard and local currency corporate bonds, from investment grade through to high yield. Our emerging market corporate debt portfolios are actively managed against a benchmark, which means they are index aware, not index constrained.

Total Return Emerging Market Debt

Insight’s total return emerging market debt strategies have the freedom to allocate tactically across the emerging market fixed income universe, maintaining a structural beta allocation to the asset class while also having the scope to add potential value by determining when that beta is attractive or expensive.

While some strategies combine exposure to different segments of the market as part of a total return approach, portfolios are still typically managed with reference to mainstream indices seeking to minimise tracking error. Insight’s total return emerging market debt strategies seek to enhance returns beyond those achieved by traditional index allocations by combining and actively managing exposures to sub-asset classes including local currency debt, external sovereign and corporate debt, tactically allocating between sub-asset classes in a bid to enhance returns.

Absolute Return Emerging Market Debt

For investors seeking a positive absolute return, we believe our absolute return emerging market debt approach offers investors significant benefits over both traditional long-only benchmarks and hedge fund approaches.

Our absolute return emerging market debt strategies have the freedom to invest opportunistically across the emerging market debt universe regardless of index weighting, while maintaining a strong focus on downside risk management to help smooth the volatility of returns which long-only investors may be more exposed to.

We invest on a best ideas basis, employing a singular, vertical investment process that is led by in-depth country analysis to identify and exploit what we believe to be the most compelling investment opportunities within the universe in a bid to generate strong risk-adjusted returns, regardless of the market backdrop.

We employ a singular investment process across external, local and corporate debt that recognises the interdependency of these sub-asset classes. We believe this approach is far superior to approaches that silo these sources of returns and treat them as distinct building blocks through the application of different investment styles and processes to each.

For illustrative purposes only.

Our team

Insight’s EMD Team has extensive experience in the industry going back to the 90s and the portfolio managers have extensive experience of major events over market cycles.

Our EMD Team employs a singular investment process across external, local and corporate debt, that recognises the interdependency of the sub-asset classes and the impact they can have on investment returns. We believe this approach is far superior to EMD processes that attempt to apply a different method to each sub-class.

We also view emerging market debt in a global context, rather than a standalone asset class, leveraging the resources and capabilities of Insight’s wider global fixed income and credit research teams.

EMD in numbers

  • 115 Fixed income investment professionals globally
  • 17years Average experience of fixed income team
  • £4.5bn emerging market exposure across all portfolios

As at 30 September 2020. Assets under management (AUM) are represented by the value of cash securities and other economic exposure managed for clients.

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Corporate profile

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Recent thinking

1Source: J.P. Morgan, Global Emerging Markets Research: EM Flows Weekly, 18 October 2018.

Important information

The value of investments and any income from them will fluctuate and is not guaranteed (this may be partly due to exchange rate fluctuations). Investors may not get back the full amount invested. Past performance is not a guide to future performance.

Where the portfolio holds over 35% of its net asset value in securities of one governmental issuer, the value of the portfolio may be profoundly affected if one or more of these issuers fails to meet its obligations or suffers a ratings downgrade.

The issuer of a debt security may not pay income or repay capital to the bondholder when due.

Derivatives may be used to generate returns as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.

Investments in emerging markets can be less liquid and riskier than more developed markets and difficulties in accounting, dealing, settlement and custody may arise.

Where high yield instruments are held, their low credit rating indicates a greater risk of default, which would affect the value of the portfolio.

The investment manager may invest in instruments which can be difficult to sell when markets are stressed.

While efforts will be made to eliminate potential inequalities between shareholders in a pooled fund through the performance fee calculation methodology, there may be occasions where a shareholder may pay a performance fee for which they have not received a commensurate benefit.