EMERGING MARKET DEBT
Daniel Moreno
Head of Emerging Market Debt
October 2018
2
Source: PwC
P R O J E C T E D R E A L G D P G R O W T H 2 0 1 6 - 2 0 5 0
Source: PWC
2016 2050
China 1 1 China
US 2 2 India
India 3 3 US
Japan 4 4 Indonesia
Germany 5 5 Brazil
Russia 6 6 Russia
Brazil 7 7 Mexico
Indonesia 8 8 Japan
UK 9 9 Germany
France 10 10 UK
E7 Economies G7 Economies
0% 20% 40% 60% 80% 100%
2050
2016Rest of the
World
Share of world GBP at PPP’s
E7G7
E M E R G I N G M A R K E T S W I L L D O M I N A T E T H E
W O R L D ’ S T O P 1 0 E C O N O M I E S I N 2 0 5 0
( G D P A T P P P S )
P R O J E C T E D C H A N G E I N S H A R E S O F W O R L D G D P F R O M 2 0 1 6 T O
2 0 5 0
G7 E7Rest of the
World
3
42%
58%
0%
10%
20%
30%
40%
50%
60%
70%
0
20
40
60
80
100
120
140
160
Developed Markets EM
Total Debt Share of GDP
Source: Ashmore, Bloomberg, World Bank, IMF, Bank of Merrill Lynch
*Source: Asset Management Survey 2016/17
On average only 0.4% allocated to Emerging Market Bonds *
US
D (
Trilli
on
s)
Pe
rce
nta
ge
of W
orld
GD
P (P
PP
-ad
juste
d)
4
Emerging markets contribute to 58% of total global growth
5Source: Ashmore, BIS, IMF, Bloomberg
6
USD trillion 2002 2007 2012 2017 2017
Local Currency 1.8 6.1 12.3 21.1 87%
Government 1.0 3.3 6.2 10.3 42%
Corporate 0.4 0.7 2.5 4.3 18%
Financial 0.5 2.1 3.7 6.6 27%
Hard Currency 1.6 3.2 1.9 3.2 13%
Government 1.3 2.7 0.8 1.2 5%
Corporate 0.4 0.5 0.5 0.8 3%
Financial 0.7 1.2 5%
EM Fixed Income 2.6 7.4 14.3 24.3 100%
Source: Ashmore, Bloomberg, World Bank, IMF, BAML
*Source: Asset Management Survey 2016/17
7
Source: Bloomberg
0
200
400
600
800
1000
1200
1400
Composite IG HY
Ha
rd C
urre
nc
y S
ove
reig
n
8
E X A M P L E : H A R D C U R R E N C Y B E N C H M A R K I S I N C R E A S I N G L Y D E P E N D E N T O N D U R A T I O N T O G E N E R A T E R E T U R N S
Source: Mirabaud Asset Management and Bloomberg as of 31/8/2018
Ha
rd C
urre
nc
y S
ove
reig
n
3
3,5
4
4,5
5
5,5
6
6,5
7
7,5
8
2
4
6
8
10
12
14
16
18
Yield Duration (RHS)
9
Currency Bonds Bonds and Currency
Source: JP Morgan GBI-EM GD, as of 31/8/2018
Currency
Bonds
Bonds and
Currency
0
50
100
150
200
250
300
350
400
Lo
ca
l Cu
rren
cy S
ove
reig
n
10
Source: Bloomberg
70
700
Brent DXY EMFX
-5.5%
+219%
+332%
Lo
ca
l Cu
rren
cy S
ove
reig
n
11
L O C A L C U R R E N C Y H I G H L Y C O R R E L A T E D T O E U R / U S D
Source: Mirabaud Asset Management and Bloomberg as of 31/8/2018
Taper tantrum
0,9
1
1,1
1,2
1,3
1,4
1,5
1,6
1,7
0
50
100
150
200
250
300
350
GBI-EM EUR/USD
Lo
ca
l Cu
rren
cy S
ove
reig
n
12
Source: BAML
Ha
rd C
urre
nc
y C
orp
ora
te
13
I N D E X T Y P E B E N E F I T S R I S K S H O W W E T A C K L E
R I S K / I N E F F I C I E N C I E S
H A R D C U R R E N C Y
S O V E R E I G N
D I V E R S I F I C A T I O N D U R A T I O N / L I Q U I D I T Y A C T I V E L Y M A N A G E D
L O C A L C U R R E N C Y
S O V E R E I G N
H I G H E R Y I E L D S V O L A T I L I T Y A C T I V E M A N A G E M E N T /
O N G O I N G R E P O S I T I O N I N G
H A R D C U R R E N C Y
C O R P O R A T E
H I G H E R C R E D I T
Q U A L I T Y
L O W E R R E T U R N S F U N D A M E N T A L A N A L Y S I S O F
C R E D I T / S T R O N G R I S K
M A N A G E M E N T
Passive/index investing expose investors to unwanted risks and reduced benefits of the asset class.
An unconstrained actively managed risk adjusted approach:
• Maximises long-term returns
• Avoids unnecessary risks and over-concentration
• Adapts to the changing nature of Emerging Markets
Up to 40% in
Local
Currency and
Credit
Investing in local and hard currency bonds
to maximise liquidity and opportunity
36% in Local
Currency
Bonds
P A R A M E T E R S P O S I T I O N
Up to 30% in
Corporate
Bonds
Invest outside of the benchmark for
additional tactical opportunities
30% in
Corporate
Bonds
Source: Bloomberg and Mirabaud Asset Management, as of 31/8/2018
Up to 20% in
Frontier
Markets
Invest in new markets in order to enhance
returns and reduce correlation20% in
Frontier
Markets
Currency overlay: Free float up to 20%, max 10% in each established EM currency
and 5% remaining currencies
13
Active flexibility is required to exploit emerging market debt opportunities
BB Average Credit Rating
Latin America 35%
Eastern Europe 19%
Africa/Middle
East 30%
Asia Pacific 7%
Central Asia 5%
Cash and Other
Assets/Liabilities 4%
YTM:
9.42%
Duration
3.90 yrs Top countries
Mexico 7.20%
Russia 6.28%
Brazil 6.22%
Nigeria 5.53%
Turkey 5.36%
Source: Bloomberg and Mirabaud Asset Management, as of 31/8/201815
Category
BRICS 18%
MINT 21%
Other 34%
Frontier 20%
Quasi-Sovereign 16%
Sovereign 22%
Treasury 22%
Financials 14%
Supranational 4%
Cash and Other
Assets/Liabilities 4%
Source: Bloomberg and Mirabaud Asset Management, as of 31/8/201816
Corporate 18%
Hard vs local
Hard Cny 64%
Local Cny 36%
B A L A N C I N G C U R R E N C Y, C R E D I T A N D D U R A T I O N
0
2
4
6
8
10
12
0 1 2 3 4 5 6 7
Corporate HC
Duration (Years)
Yield (%)
Mirabaud – Global Emerging Market Bond Fund
Sovereign LC Sovereign HCUS High Yield
US Treasuries
Source: Bloomberg as of 31/8/2018
HC=Hard Currency, LC=Local Currency
17
85
90
95
100
105
110
115
120
125
130
01/01/2015 01/05/2015 01/09/2015 01/01/2016 01/05/2016 01/09/2016 01/01/2017 01/05/2017 01/09/2017 01/01/2018 01/05/2018 01/09/2018
Composite 50/50
18
Source: Bloomberg as of 31/8/2018. EM Composite: until 30.10.2017 Rubrics Emerging Markets Fund, from
01.11.2017 Mirabaud – Global Emerging Market Bond Fund. 50/50: JP MORGAN EMBIGD & GBI-EM GD
+18%
+8%
Start of Mirabaud – Emerging
Market Bond Fund
19
Objectives
Fund Objective An emerging market strategic bond fund targeting attractive risk adjusted returns across the business cycle by adopting
an unconstrained approach to investing in global emerging market sovereign and corporate debt in both hard and local
currencies.
Secondary Investment Objective Lower volatility and superior capital preservation versus peers
Investment Style Total return, unconstrained fixed income investing
Investment Universe Emerging Market Sovereign and Corporate Debt in Hard and Local Currencies
Number of Issuers Approx. 100
Investment Guidelines
Hard Ccy Exposure
Local Ccy Exposure (unhedged)
Corporate Debt Exposure (IG or HY)
Maximum holding
0% - 100%
0% - 40%
0% - 30%
2.5% per issuer
Limit on Frontier Markets 20%
Limit on Currency Exposure 10% for established emerging market currencies, 5% for less liquid frontier currency
VaR Range 3%-6%
Fund Launch 1st November 2017
M I R A B A U D – G L O B A L E M E R G I N G M A R K E T B O N D F U N D
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Issued by Mirabaud Asset Management Limited which is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the
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