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M&G’s Calich pushes local currency bets to highest level

M&G’s Calich pushes local currency bets to highest level

After the US election bad news was priced in across emerging markets, adding to local currency exposure is a good bet, according to M&G’s Claudia Calich.

‘Since the end of last year I have been adding to local exposure and it currently sits at around 30%, which is the highest it’s been since I took over the fund, she told Citywire Selector.’

Calich took over the $487.19 million (£388.54) M&G Emerging Markets Bond fund in 2013, which was previously managed by Mike Riddell.

When Calich took over, the exposure to local currency was in the range of 10%, a number she has steadily increased over the past four years.

‘After the US election, we were already pricing in bad news, not only with the Mexican peso (2.3%), but also with some other EM countries.

‘We have had a huge rally on hard currency bonds and spreads have tightened, including both in the sovereign and corporate space. Valuations are becoming more interesting in local markets due to the fact that external debt has rallied.’

Eyes on Egypt

Egypt currently sits in the top ten country positions (physical bonds only) of the portfolio. 

Calich currently has 2.19% of the fund allocated to the country, with 1.1% allocated to the Egyptian pound, and said she has also recently added Egyptian treasury bills to the portfolio.

‘Egypt finally allowed its currency to fully devalue late last year which created a huge movement, which is typical when you have currencies that are pegged or have huge degrees of capital control.

‘When these currencies are devalued they don’t go by small amounts they go by 10-30%, you have big movements which usually makes the currency overshoot – when that happens they usually go back to fair value.’

Calich said even if there is not huge nominal appreciation in the Egyptian pound, the yields are still appealing.

‘Yields are still around 18%, depending on what part of the curve or what bond you own before taxes, it’s still attractive and can generate returns.’

The M&G Emerging Markets bond fund returned 17.63% in US dollar terms, over the three years to the end of March 2017. This compares with a 19.89% rise by its Citywire-assigned benchmark, the JP Morgan EMBI Global Diversified TR, over the same time period.

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