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The new EMD elite: four managers to watch

Citywire Investment Research examines a quartet of newly-rated names.

Market Overview

Emerging market bonds as an overarching asset class, covering both local and hard currency debt strategies, has 128 managers with a rating this month. This is broken down to 10 who are AAA rated, 19 are AA rated, 52 are A rated and 47 have a Citywire + rating.

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Highest New Entrant

Fund Manager: Jose Zitelmann , BTG Pactual

Rating: + Rated

Overview

Sitting with the specific Latin American sub-sector, BTG Pactual’s Jose Zitelmann is one of this month’s highest new entrants. He has achieved a + rating after a strong three-year performance in the emerging market bonds asset class.

The BTG Pactual SICAV-Latin Amer Corp Debt A USD acc fund invests primarily in Latin American corporate debt and has been managed by Zitelmann and co-manager Albano Franco since March 2013. The fund’s biggest bet is on Centrais Eletricas Brasileiras debt, a Brazilian power generation company, which accounts for 7.9% of the portfolio. Its second biggest exposure is to SMU, a supermarket chain in Chile, which accounts for 6.1% of the portfolio.

Zitelmann and Franco are currently bullish on Brazil with 17.7% of the portfolio allocated to the region, with Chile and Mexico coming close behind at 14.3% and 13.9% respectively. He returned 4.3% over a three year period compared to the average manager’s 1.9%.

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Comeback Star

Fund Manager:Cathy Hepworth, PGIM

Rating: A rated

Overview

Operating within the emerging markets global hard currency sector, Prudential Group IM’s Cathy Hepworth is this month’s comeback star by earning a Citywire A rating for the first time since her previous Citywire A rating two months ago in March 2017.

Although she manages many funds in the EM hard currency sector, her work on the Nordea 1 – Emerging Market Bond BP USD is the driver this month. She runs this fund on mandate along with co-managed David Bessey.

The EM bond fund invests mainly in sovereign and quasi-sovereign entities and occasionally opportunistically dips into corporate bonds according to the investment objective. However the asset allocation paints a slightly different picture with 67% of the fund invested in government bonds and 28% of the fund invested in corporate bonds – a major allocation to the latter sector.

The fund’s biggest bet is on the Argentine government, with 1.9% of the portfolio allocated to a 2038 bond. Hepworth’s second biggest bet is on Petróleos Mexicanos – or Pemex – with 1.4% of the portfolio allocated to the Mexican state-owned petroleum company.

Mexico is also the largest allocation by country in the fund, with 5.86% allocated there. Argentina follows very closely behind with 5.85% of the portfolio invested there.

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One to Watch

Fund Manager: Thierry Larose, Degroof Petercam

Rating: AAA rated

Overview

Thierry Larose of Degroof Petercam is our manager to watch this month, as he performed strongly throughout 2016 and so far into 2017. This performance has seen him consistently achieve a AAA rating dating back to February 2016.

The fund helping him reach such heights is the DPAM L Bonds Emerging Markets Sust B EUR Cap, which he has managed since the mid-March 2013. The fund returned 3.1% over a three-year period compared to the average manager’s -6.9%, an outperformance of 10 percentage points.

Larose has recently increased his position in Korea and Indonesia, while also upping exposure to Ivory Coast and Ghana. He is confident the convergence trade between emerging and developed market rates remains the underlying driving force.

Geographically the fund’s largest bet is on Mexico at 9.8%, Brazil at 8.2% and Poland at 6.2%. Larose said, even after more than a year of rally, valuations in local currency debt are still attractive on a medium-term horizon and he sees the risk of general protracted weakness as “very low” as cash flows and fundamentals are simply too supportive.

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Rising Star

Fund Manager: Laura Burakreis, Franklin Templeton Investments

Rating: A rated

Overview

Emerging markets specialist Laura Burakreis of Franklin Templeton is our rising star for this month as she achieves a A rating for May up, which is up from her Citywire + rating from April.

The Templeton Emerging Markets Bond fund currently has $5.17 billion of assets and is co-managed by Michael Hasenstab, who has been managing the fund since 2002. Burakreis joined as co-manager of the fund in January 2010.

The fund invests in emerging or developing market corporate or sovereign debt. Relative to its own benchmark, the JP Morgan EMBI Global Index, the fund is largely overweight in Brazil by 7%, in Argentina by 6%, and in Ghana by 10%.

Burakreis and Hasenstab are slightly less certain about Mexico as the fund is underweight by 7%. In terms of currency, the benchmark is 100% USD compared to the portfolio which holds 39% USD, 21% Mexican peso, 13% Brazilian real and is short the euro and Japanese yen by 16% and 18%, respectively.

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Related Fund Managers

Thierry Larose
Thierry Larose
13/128 in Bonds - Emerging Markets Global Local Currency (Performance over 3 years) Average Total Return: 6.78%
Laura Burakreis
Laura Burakreis
12/128 in Bonds - Emerging Markets Global Local Currency (Performance over 3 years) Average Total Return: 8.50%
Cathy Hepworth
Cathy Hepworth
48/160 in Bonds - Emerging Markets Global Hard Currency (Performance over 3 years) Average Total Return: 14.85%
Jose Zitelmann
Jose Zitelmann
85/155 in Equity - Brazil (Performance over 3 years) Average Total Return: 39.91%
Albano Franco
Albano Franco
8/14 in Bonds - Emerging Markets Latin America (Performance over 3 years) Average Total Return: 6.88%
Events
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