Emerging markets have come into sharp focus with the ascent of protectionist-minded President Donald Trump in the US, with many investors skittish over a possible re-run of 2013’s 'taper tantrum'.
One of the hardest-hit areas during this period of dollar strengthening was the local currency developing world debt market, as market participants moved into hard currency alternatives amid volatility concerns.
The most commonly held benchmark, the Bloomberg Barclays EM LC Govt-10%CountryCap TR USD, dropped 3.4% in US dollar terms over the five-year period to January 2017, having notably fallen away from a height of 12.8% in April 2013 – one month before Ben Bernanke’s tapering comments.
But how have fund managers fared? Looking closely at the emerging markets global local currency sector, there are currently 170 active managers with 79 of these dedicated investors boasting five-year track records.
Looking at the longer-term performance figures, the average of these 79 managers lost 9.49% over the 60 months to the end of January 2017 and strongly lagged the sector benchmark, with returns calculated in US dollars for comparison purposes.
There is, however, one fund manager who has held his head above the turbulent waters and comes out of the five year analysis period having beaten his average peer’s return in every individual year.
Morten Bugge, Global Evolution
Five year total return (January 2012-January 2017): -2.18%
Best year of outperformance vs. average manager: +2.69% in 2015/16
Sitting pretty with the only perfect record of outperformance is Danish investor Morten Bugge, who is chief investment officer of emerging markets boutique Global Evolution Funds. Bugge is a named manager on seven EMD strategies but runs just the EM Local Debt fund in the emerging markets global local currency sector.
Bugge has overseen this fund since its launch as a Luxembourg-domiciled strategy in 2011. In the fund, which has just €2 million in assets, Bugge focuses most heavily on sovereign debt. His largest investments, according to the end of 2016 data, are in Mexican, Colombian and Brazilian government debt.
Also according to the factsheet, Bugge has kept the fund highly liquid, with around 8% held in cash or US dollars, while 30% of the fund is invested in debt with a maturity of one year or less. This forms part of a barbell approach, as 31.7% of the fund is invested in bonds with a seven year or greater maturity date.
In terms of pure performance, Bugge actually sits 15th out of the 79 managers over five years. However, his consistency is noteworthy and in 2013/14, which would encompass the impact of the taper tantrum on his returns, Bugge limited losses to 11.3%, while the average manager was down 12.7%.
His one period of positive performance over this timeframe came during the first year of this analysis. Between 2012/13, Bugge returned 11.97%, while the average manager returned 9.7%.