Keen mountain biker Luc D’Hooge says age is beginning to impede on his ability to get the most from this rugged sport. The same cannot be said for his performance through the bumpy terrain of emerging markets.
The Citywire AA-rated manager, who runs the Vontobel Fund Emerging Markets Bond and the Vontobel Fund Emerging Markets Debt strategies, is top out of 161 managers in his sector over three years with an aggregate return of 26.6%.
In this environment, a bit of seniority can be a definite advantage and D’hooge says staying calm is a real plus. His five-year figures bear this out as he has clocked up 39.8% in US dollar terms over the period, which includes a lengthy tenure at Candriam Investors, which he left in March 2013.
‘I invest with a long-term horizon, never to make a quick dollar, that’s just not my way. I only take on bonds that I believe are too cheap. It doesn’t mean that it has to be a credit or country that is improving, in fact, that is rarely the case.
‘Investors in emerging markets tend to overreact, I don’t know why, perhaps because it’s seen as riskier and more exotic,’ he says.
D’hooge’s more recent numbers are also a testament to this steady approach. In the 12 months to the end of August this year he has returned 14.1%, beating peers in the sector such as fund selector favourites Michael Hasenstab and Laura Burakreis of Franklin Templeton, who returned 12.9%.
Focusing on the longer-running of his two funds, the Vontobel Fund Emerging Markets Debt, D’hooge puts this year’s outperformance down to his allocation to Latin American countries, which as of July 2017, sat at 40.68% of the portfolio.
‘Year to date, and also last year, we made a lot of money out of our Mexican positions. Our biggest country bet is still Mexico, although it has rallied slightly and is getting less attractive, so we have started to reduce our positions a little’ he says.
Riding a Mexican wave
The Mexican peso tumbled to its lowest level since the 1994 Tequila crisis, in the wake of Donald Trump’s November electoral victory. Mexican businesses were worried about what a Trump presidency would mean, but D’hooge says investors overreacted to the election result and the market corrected ‘way too much’ due to fears of a collapse in global trade.
‘Obviously, Mexico could suffer a lot from that. But if you look at the spreads of Mexican bonds, at the end of last year you could buy a century bond for instance, so these are very long-dated securities. The country issues three-century bonds – in euro, sterling, and dollar.
‘The most attractive at the time of the US election was sterling, you could have had a big spread with a low maturity of 4% extra on yield-to-maturity, that’s massive,’ he says.
‘If you compare Mexican bonds and spreads to other countries, it’s clear why this has been a good position for us. Let’s compare it to somewhere like Jamaica, for example. Jamaica is a good story and the government is doing a lot of things to improve the economy, but of course, rating agencies make plenty of mistakes.
‘The longest Jamaican bond was trading at about 360 bps over treasuries during the US election, in Mexico that would have made no sense. Overreaction to Trump’s election didn’t create opportunities in Jamaica, which is an example of somewhere I think is doing a good job, but the credit quality is just not the same as a country like Mexico.’
Aside from Mexico, D’hooge also favours Argentina and Indonesia.
‘They have both been big contributors to the Debt fund. We took positions in euros for both countries as well as some sterling, and then we hedged the currency risk, giving them much better characteristics.
‘Argentina is still attractive. You have bonds which pay out on the same date, with not exactly the same coupon, but they trade roughly the same yield in euros and dollars. The treasury bonds give you about 2% more than euros and it’s a bit absurd,’ he says.
This article appeared in full in the October edition of the Citywire Selector magazine.