PSigma Investment Management CIO Thomas Becket is adding BlueBay’s Emerging Market Corporate Bond fund to the group’s fixed interest portfolios.
Becket says while the asset class is relatively small, at about $600bn, it has strong long-term alpha prospects and provides an alternative to the group’s to current credit holdings.
The manager says EM credits could be an enticing way to play the long-term growth prospects in the developing world, but with lower volatility than the equity markets.
“We believe this ‘asset class of tomorrow’ could deliver excellent long-term returns while also delivering a healthy yield,” Becket says.
“EM corporate bonds are trading at double the spread of similar-rated companies in the developed markets, despite the fact they have similar capital structures, higher growth potential and lower leverage. This to us presents attractive opportunities for early investors.”
Becket says PSigma is also attracted to EM corporate credit because of the asset class’s lack of duration and interest-rate risk.
“We do not like conventional sovereign bonds or investment-grade credit because of our expectations for interest rates and bond yields to be driven up from ultra-low levels, spurred on by fears over sovereign credit risk and inflation expectations,” Becket adds.
“Relative to government bonds and high-quality corporate debt, where there is significant sensitivity to higher rates and where coupon income is currently very low, the 6%-8% income from EM credit in a rate-insensitive asset class is very attractive.
“We believe this will also cause investors who are currently holed up in swollen developed world credit funds to start examining and flocking to EM credit.”
After beginning research on the asset class towards the end of last year, Becket identified BlueBay as the best in the business for access to the market.
