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Sustainable edge gives EMD star ‘surprise’ sector lead

Sustainable edge gives EMD star ‘surprise’ sector lead

Fund manager Thierry Larose announced his exit from Petercam Degroof AM last week. He spoke to Citywire Selector last month to discuss the performance which sees him lead the emerging market debt sector on a three-year risk-adjusted basis.

ESG investment is the height of fashion: new launches, retro-fitted funds and overarching sustainability strategies abound. But for Degroof Petercam’s Thierry Larose, this is old hat.

The top performer in the emerging market bonds sector has overseen an ethical overlay on the DPAM L Bonds Emerging Markets Sustainable fund since it was first launched as a Ucits vehicle in early 2013 and he is reaping the risk-adjusted rewards.

‘It was a straightforward idea to apply an ESG or sustainable approach to emerging market bonds but we haven’t seen any of our competitors do it, which surprises me.

‘One big US firm has a dollar bond fund with an SRI focus but nobody is applying it to the emerging world, which is where it actually makes sense to me. I wouldn’t be shocked if, given our performance, other people now do it but we have first-mover advantage,’ he says

Screening for success

The €1 billion fund targets bonds issued by any emerging market country, which includes public bodies and international organisations such as the World Bank or the European Bank for Reconstruction and Development. Within that, Larose also has an exclusion list.

‘Over the life of the fund there has been no loss of performance as a result of using an ethical exclusion approach and it has actually proven a considerable advantage,’ he says.

‘Due to our sustainable style, we have no exposure to Russia, for example, and that has been a good and a bad thing over the last few years. It hurt performance recently but the commodities market collapse in 2014 as well as the Crimean conflict justified being entirely out of the market.’

Pushing the envelope

Many investors might be wary of Larose’s relatively narrow investable universe but he has expanded his remit beyond traditional indices to uncover suitable investments which meet his stringent criteria.

‘We have benefitted by broadening our exposure beyond the commodities-rich countries that dominate the indices. On average, the indices for emerging market debt hold 16-17 countries as a rule and the bulk of these have commodities as a main sector.

‘But we have the flexibility to invest in countries that are arguably developed but classified as developing – such as Korea, Singapore and others – while occasionally moving into the more developed frontier markets as well, he says.

This interview appeared in the 2017 edition of Euro Stars which was published in November.

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