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Top EMD manager: the lost art of taking risk

Top EMD manager: the lost art of taking risk

Edmond de Rothschild AM’s Jean-Jacques Durand is top of the emerging market global hard currency bond sector on a one, three and five-year basis. He tells Chris Sloley his secret ingredient which has seen him dominate his sector.

So, what has driven this outperformance? ‘In a nutshell, I take risk,’ says. ‘We take views, we have conviction and that is the basis of asset management.

‘We may take a top-down perspective, as we have the flexibility to move in and out of markets, but also we can home in on a single strategy or country.’

Durand has made good use of his ‘flexible and opportunistic’ approach over the past two years in the Edmond de Rothschild Emerging Bonds fund.

He exited Russia just before the rouble tumbled, and bought into pre-rally Brazil during a period when the Lava Jato scandal was all anyone could talk about.

‘Russia was a top position in 2015 but it is completely out now, despite still being a big part of the index. Conversely, for three years we had nothing in Brazil and then last year we added to what would become some successful positions.

‘As you see, we can make dramatic moves but we are not traders. We are reflecting long-term views.’

Durand has expanded the scope of his fund to include a range of hard currency markets loosely termed as ‘frontier’. This means countries such as Mozambique, Iraq and Kazakhstan sit comfortably within the top 10 country weights of his fund.

‘In terms of frontier markets, or the smaller weights, they have given us opportunities in hard currency debt and we have found openings there because it is a much wider universe of 80 countries compared with only 15 in local currency.’

But, operating with a time horizon of up to two years, Durand admits he has to withstand volatile periods. ‘It is very hard sometimes, but then it is not about tactical trading. Too much trading can be a source of friction these days because people are increasingly too short-termist.

‘Typically we hold positions for six months to two years, which is actually quite long, as EMD funds generally have a much shorter time horizon.’

About 60% of Durand’s bets are in sovereign or quasi-sovereign debt, while tier one corporate credit accounts for the remainder. Durand says this is done to retain both liquidity and quality in the fund.

‘We don’t internalise the analysis and are more dependent on external research, so we focus more there. That is why we cannot delve into the tier two or tier three EM corporates, which restricts us slightly and makes us more sovereign-focused.’

This is an excerpt from a longer interview published in the March edition of Citywire Selector magazine.

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