Emerging markets are may appear robust but don't under-estimate how vulnerable they remain to Federal Reserve action.
In an investor update, Citywire + rated Bezalel said US interest rates had been kept low for too long, but there were still EMs where investors could find decent yields.
‘High yield and emerging markets look vulnerable if rate rises bring about a strong dollar. However much some market participants try to give the impression that EMs can ride out a strong dollar today, I don’t think that is right,’ Bezalel said.
‘I think emerging markets still have huge dollar liabilities and a rally in the dollar makes a lot of these emerging market areas somewhat vulnerable. They could come under pressure because they have been so strong. Highly leveraged corporates look vulnerable.’
Bezalel has 15% of the fund allocated to EMD and India makes up 8% of the fund, while Bezalel said Argentina had also provided good returns this year but he had taken profit there.
‘I think India is a compelling story and we continue to have a large weighting across sovereign and quasi sovereign. You are getting local currency and you are getting high single digit yields. We like some of the housing finance companies in India,’ Bezalel said.
Demand and supply
In terms of sectors, Bezalel said there are certain areas of the energy market which are offering investors opportunities.
‘The oil supply and demand situation is getting better, as we have been getting back in a small way into the rig space, we have been adding to some of the exploration companies.
'Some of the oil services businesses are quite interesting. There are some good valuations and some high single digit, double digit yields,' Bezalel said.
'I think the shale space is under a bit of pressure as costs are starting to increase there. I am not convinced that the output from the North American shale space will continue.'
Over three years to the end of September 2017 the Jupiter JGF Dynamic Bond L USD Q Inc HSC fund returned 11.42% in US dollar terms.
This compares to a rise of 9.69% by its Citywire-assigned benchmark, the Bloomberg Barclays Global Aggregate USD Hedged TR, over the same time frame.