Investec’s Emerging Markets Debt fund, the first daily-dealing UK onshore vehicle investing in local currency EMD, has broken through £1bn of assets after seeing substantial flows over the past year.
The fund, managed by Peter Eerdmans, has grown from £91m at the start of 2009 to more than £1.15bn currently. It was just £428m at the beginning of 2010.
Investec Asset Management UK distribution managing director David Aird says the asset class has received tremendous interest from the discretionary and wealth manager space.
"Most IFAs are aware of emerging market equities, but they are not there yet on EMD. The mass market tends to get its EMD exposure from either a strategic bond fund or a global bond fund," Aird says.
"But the wealth managers and the institutional channel are becoming big investors in the asset class. The sophisticated investors have realised this is an area quite uncorrelated to other assets.
"If you compare EMD to emerging market equities over the past 16 years, local currency debt has delivered twice the annualised returns for less than half the annualised volatility."
While the strong flows into the asset class has reduced EMD spreads over developed markets in the past year, Eerdmans sees no reason why there can not be more compression.
"By the end of May, we had already seen $32bn of global investor flows move into emerging market debt, which was in-line with the full year 2009. But emerging market debt is still at historically wide spreads, when you exclude the height of the financial crisis," Eerdmans says.
"We are very much at the beginning of the cycle. Portfolios currently have less than 1% in EMD. I can see a time in the near future when this allocation gets up to 3%-5%."
