PARTNER INSIGHT: Matt Murphy, Institutional Portfolio Manager at Eaton Vance, explains why an unconstrained EM debt mandate has the potential to generate greater alpha than is possible in a benchmark.
What is the Eaton Vance Emerging Markets Local Income Fund designed to do?
The Fund is designed to give investors a beta return of 1.0 to the JP Morgan GBI-EM Global Diversified benchmark and an additional 100 - 200 basis points of excess return. Ideally providing investors with market exposure they want for their portfolios in addition to excess return to justify the use of active management. Our goal is to make the excess return fairly consistent. What that translates to is very high information ratios relative to our peers. The information ratio measures how volatile the alpha is, and our strategy's alpha is relatively non-volatile. I think every manager says they want to provide excess return but our process delivers consistent and meaningful alpha regardless of the market environment.
What is your investment process?
JP Morgan lists 18 countries in the benchmark and accounts for about $900 billion worth of market capitalisation. Our investment process is unique in the emerging markets universe
because we spend a lot of time taking risk beyond the benchmark. Our team has the ability to access 80 countries, not 18, and that leads to a total of around $2.25 trillion worth of market capitalisation. So our investment process isn't dependent on being better than our peers at investing in Brazil, for example, because that's difficult to consistently do over the long term. Instead, our process is designed to use the entire universe and select positions with high Sharpe ratio ideas, rather than owning something simply because the benchmark tells us to. To do this we take significant active risk, relative to our peers.
Click here to learn about Eaton Vance invests significantly beyond the confines of the benchmark.