The fund, named EI Sturdza Strategic Quality Emerging Bond Fund, comes with an investment strategy that will focus on enhancing yield, through active management, with a focus on global emerging markets, with as low as possible portfolio turnover, said the company.
It also admitted the strategy carried a “higher level of volatility” compared to other actively managed funds on the market due to its EM focus.
However, EI Sturdza was keen to reassure investors the portfolio would mean “lower risk, low default risk and lower volatility” compared to EM benchmarks and bonds.
Registered for sale in Switzerland and with plans to expand into other European countries, the fund’s investments will be within hard currency bonds, denominated in US dollar, predominantly BBB+ to BB+ rated issuers in fast growing global regions. Local currency debt will be excluded from consideration, said the investment fund.
Eric Vanraes, portfolio manager of the new fund, said: “Emerging market fixed income is entering an interesting period, and despite some challenges there are still plenty of opportunities if you know where to look, particularly as some other markets begin to stabilise. Our investment approach will diversify the fund appropriately and compliments EI Sturdza’s global bond and euro bond strategies.”
EI Sturdza said it has launched the fund in recognition of the following market dynamics:
- Emerging market bonds (sovereign and corporates) offer diversification compared to traditional fixed income investments – there are opportunities in fast growing regions of the world, with attractive valuations and high expected returns.
- Emerging market bonds offer significant spread pick-up over the US market and their spread above US bonds is above its long term average.
- Emerging market economies and bond markets offer more investment opportunities when the portfolio manager is able to manage higher volatility and different dynamics affecting the market (relative to traditional fixed income investment grade and developed markets), as well as political risk.
- Emerging market issuers often have lower leverage, more cash than their developed market peers; however with wider spreads.
- Many sovereigns have implemented reforms, creating opportunities for investors.
- Emerging market default rates are lower than in the high yield space.