“[Emerging market] debt is seen as the very definition of the perfect place for active managers to outperform – difficult to access markets, inefficient pricing, lack of transparency, lower liquidity – all of these are supposedly the things that help active managers create value.
“But the stats show that they really struggle over the long term.”
According to Morningstar data looking at emerging-market debt funds as at 31 December 2016, 73% underperformed the JPM GBI-EM Global Diversified Index over one year. On a five-year view, 90% underperformed the benchmark.
McCaffrey said the same kind of pattern was emerging with State Street’s convertible bond ETF versus its active competitors over a shorter two-and-half years time horizon.
She said ETF giant State Street, whose trackers are offered under the SPDR brand, was currently the only provider in the world with such a product.
Given the low-rate environment and the degree of economic and political volatility, McCaffrey said there could be strong demand for convertible bond ETFs – especially from investors who want to participate in equity-market type upside but also protect against volatility.
“Overall, what the industry needs to do is really challenge those areas where there is a sense of needing to manage a type of fund actively,” she added.
