Emerging Markets Debt

Active, high-conviction approach leveraging fundamental research and sustainability

Key points

  1. Alpha* generation based on sovereign creditworthiness and currency frameworks

  2. Two performance drivers: top-down market positioning and bottom-up country and currency selection

  3. Sustainability and transition factors are fully integrated to manage downside risks

*Alpha refers to the excess return of an investment relative to the benchmark index and is a measure of performance.

Emerging fixed income markets continue to evolve and are prone to structural inefficiencies. This offers multiple risk premiums – interest rate, credit risk, liquidity, and FX – allowing us access to diverse sources of returns within a strong, risk-controlled framework.

We believe that unlocking value in emerging markets requires a comprehensive and active investment approach. Our strategies aim to capitalize on shifts in any risk premiums specific to emerging markets or the global environment.

Alpha drivers

Our Emerging Markets Debt (EMD) strategies aim to capture market inefficiencies through integration of top-down beta positioning and bottom-up issuer selection.

  • Top-down positioning

    The top-down view guides the overall beta and relative duration positioning of both EMD strategies and steers the allocation between higher and lower beta assets.

    Our approach is designed to benefit from any stage of the business cycle. A key part of this is determining the optimal risk allocation across market cycles. We analyze global financial and risk conditions next to valuation and technical factors specific to EM hard currency (EMD HC) and EM local currency (EMD LC) debt markets to arrive at an overall monthly assessment of the demand for each of the asset classes.


  • Bottom-up issuer and currency selection

    For both strategies, we assess sovereign creditworthiness trends using our proprietary quantitative Sovereign Ratings Model (SRM). The model evaluates key indicators of liquidity and solvency, helping us anticipate improvements or deteriorations in credit quality and in extreme cases, identify signs of severe distress or potential default. Political risks, macro-economic and sustainability factors are analyzed through a qualitative fundamental assessment summarized in a proprietary country report. In the EMD LC strategy, in addition to sovereign creditworthiness, we assess relative drivers for domestic rates and currencies through proprietary scorecard frameworks.

Risk management

We aim to manage efficiently constructed portfolios offering diversification across all emerging markets fixed income risk premiums. The size of our positions reflects our level of conviction, as well as volatility and correlation dynamics.

Managing risk in emerging market debt requires a disciplined, data-driven approach, across multiple dimensions. We use a range of measures to guide the overall risk positioning at both country and issuer level.

We actively shape exposure to emerging countries to align across market environments Diliana Deltcheva
Diliana Deltcheva
Head of Emerging Market Debt

Team

Our highly experienced EMD sovereign team collaborates with specialists across Global Macro, Credit, EM Equity, Data, and Sustainable Investing to leverage diverse perspectives and enhance investment decisions.

Sub-strategies

EMD Hard Currency:

Identify and benefit from idiosyncratic or market driven shifts in sovereign creditworthiness.

EMD Local Currency:

Identify and benefit from EM or global monetary policy cycles and currency regimes.


Sustainability

Sustainability and transition indicators are fully integrated in our sovereign creditworthiness evaluation and portfolio construction process. Our country sustainability ranking (CSR) and SDG alignment scores are key inputs in the Sovereign Rating Model, reflecting our belief that ESG and sustainability factors have direct and material impacts on sovereign credit quality.

Ingredients

  • High-conviction approach

    Active strategy that aims to successfully navigate macroeconomic, political, and sustainability EM risks under all market conditions

  • Stability

    Managed by an experienced team with deep expertise

  • Research driven

    Focus on identifying improving or deteriorating EM stories

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