A research-driven emerging markets debt (EMD) strategy seeking to deliver attractive risk-adjusted returns while contributing to environmental objectives, such as climate change adaptation and mitigation. The strategy aims for as much alignment as practically possible with the EU Taxonomy.
Our investment philosophy is based on the principle that EMD is a heterogeneous, semi-efficient market with multiple sources of mispricing. We believe in casting the widest possible net to identify and seek to profitably exploit opportunities, looking for them at every level of analysis – asset class, country, industry, issuer, security.
Risk-adjusted portfolio management style
- Aims to identify the best risk-adjusted return opportunities from the full spectrum of emerging markets green bonds, while adhering to the most credible environmental standards.
ESG innovation
- The team’s ESG investment process is guided by the EU Taxonomy. The EU Taxonomy aims to establish a science-based framework for defining environmentally sustainable economic activities.
An experienced, well-resourced EMD team
- Dedicated EMD team comprises veteran investors with multi-year experience of managing the full spectrum of EMD.
The team follows a methodical process that starts with defining the investment universe of emerging markets green bonds and other sustainable bonds, then proceeds to the assessment of the global macro environment, sovereign analysis, and then to individual corporate selection. Finally, the team assesses the portfolio holdings for alignment to the regulatory requirements of the EU Taxonomy.
The objective of the global macro analysis is to anticipate the general direction of global credit spreads, developed market rates and the US dollar by examining global macroeconomic trends.
The sovereign analysis is conducted by the team of dedicated regional specialists. Our final assessments encompass all relevant economic and political variables.
Corporate analysis is conducted by the dedicated emerging markets corporate analysts working together with industry specialists from our global credit research team. We consider data quality/track record, financial profile, relative value versus peers, qualitative factors, and deal structure.
The EU Taxonomy assessment is conducted through analysis of the sustainable bond issues to identify those that are most aligned with the EU Taxonomy’s four principles. The bond must: (i) contribute to one of the six specified environmental objectives; (ii) do no significant harm to any of the six environmental objectives; (iii) comply with minimum safeguards; and (iv) comply with the technical screening criteria.
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Risks
Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.
The investment may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.
International investments entail risks including fluctuation in currency values, differences in accounting principles, or economic or political instability. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility, lower trading volume, and higher risk of market closures. In many emerging markets, there is substantially less publicly available information and the available information may be incomplete or misleading. Legal claims are generally more difficult to pursue.
Fluctuations in exchange rates between various foreign currencies may cause the value of the investment to decline. The market for some (or all) currencies may from time to time have low trading volume and become illiquid, which may prevent the Strategy from effecting positions or from promptly liquidating unfavourable positions in such markets, thus subjecting the investment to substantial losses.
IBOR risk is the risk that changes related to the use of the London interbank offered rate (LIBOR) or similar rates (such as EONIA) could have adverse impacts on financial instruments that reference these rates. The abandonment of these rates and transition to alternative rates could affect the value and liquidity of instruments that reference them and could affect investment strategy performance.
The disruptions caused by natural disasters, pandemics, or similar events could prevent the strategy from executing advantageous investment decisions in a timely manner and could negatively impact the strategy’s ability to achieve its investment objective and the value of the strategy’s investments.
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