Fund Manager of the Year Awards: Winner's interview with the Eaton Vance Emerging Markets Local Income team
Winner of the Bonds: Emerging Market Debt Award
In this series, Investment Week speaks to some of the winners of the Fund Manager of the Year Awards 2020.
What has helped drive performance for the fund in recent years?
In recent years, contributions to performance can largely be attributed to positions in Serbia, Egypt and Ukraine.
The team was one of the first investors in Serbia's local market in the late-2000s, when the yield curve consisted of only T-bills offering mid-teen interest rates. Over time, Serbia's yield curve has expanded to 10-year bonds with yields near 3%.
After exiting Egypt's local market in 2011, the team returned in 2017 (after the central bank permitted the pound to float), taking advantage of low-teen yields with limited currency volatility.
Finally, the team's more recent investments in Ukraine have benefited from currency appreciation and lower interest rates, as the country undertakes a significant, multi-faceted reform programme.
Additionally, the fund has been rewarded through a long-standing underweight position to South Africa's currency.
The combination of policymakers' absence of an economic growth plan for the country, as well as the gradual deterioration of the business climate, influence this positioning.
How do you think EMD investing will evolve over the years ahead?
Market capitalisation for EMD is projected to grow over time, as countries and their respective capital markets mature.
Further, we expect EM local debt to grow as a percentage of total EMD market capitalisation, while providing superior returns to hard currency debt and emerging markets equities.
With growth in local markets, country fundamentals are likely to grow in influence as it relates to broader macro factors, including US monetary policy, commodity prices, and China's economic growth, which have significantly influenced performance historically.
The growing importance of country fundamentals indicate that ESG considerations will carry greater weight, specifically as it relates to governance.
As such, as governments adopt policies that liberalise their economies and nurture principles of economic freedom, we believe that it is reasonable to expect country risk premia to decline.
It is our view that investors who allocate early will likely benefit the most from this expected improvement.
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