Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The EMLD advantage
Our macroeconomic base case evolves gradually. However, the market pricing of this base case changes more rapidly, which provides opportunities to take advantage of changing risk premia.
We believe that better absolute and risk-adjusted returns can be achieved by:
- Allocating risk based on a macroeconomic outlook, rather than predicting returns
- Employing an investment horizon of 9-18 months, which allows us to look through short-term noise while still adding value through both allocation and selection
- Recognising that governance and the impact of environmental and social policy are key inputs to analysing country-level growth and sustainability
The Invesco Emerging Markets Local Debt Fund's objective is to outperform the strategy's index by 200 bps (gross of fees) annually over rolling three-year periods.
Meet the team
- Manages US$8 billion in assets across platform, including US$3 billion in emerging markets local currency debt
- Long, successful history of investing in international fixed income, dating back to the mid-1990s, enables the team to interpret market events through a multi-decade context
- Deep team of 11 investment professionals, with diverse international backgrounds, including fluency in over 20 languages, which helps inform an interconnected global perspective
- Integrated macro and country analyses across developed and emerging markets that allows for a holistic approach to investing in global fixed income assets
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
Going forward, we see global macro conditions aligning for a sustained outperformance of EM local fixed income over the next 2-3 years, and believe we are well positioned to capitalise:
- Alongside the global rollout of COVID-19 vaccine programmes, growth forecasts continue to improve in EMs and global growth is likely to be higher in the coming years
- The Federal Reserve's significant shift in monetary policy framework means that US financial conditions will not tighten even as growth expectations improve, which should ensure that the dollar materially declines, boosting EM assets, particularly EM local bonds
- In our view, central banks in developed markets have become significantly more reactive and will need to see materially higher inflation that is self-sustaining through wage increases, before materially tightening financial conditions
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
Following recent market moves, yield curves in emerging markets have further steepened, creating an attractive entry point in EM local debt. With attractive valuations in most EM countries and the right conditions for a weaker USD, we continue to find opportunities across EM rates and FX:
- We continue to favour 5-7 year local bonds to take advantage of attractive yield levels (5-6%) and total return afforded by steep yield curves
- We have maintained our FX exposure in the high 90%, given our expectation that the US dollar will continue to weaken due to the impact of the massive programmes implemented by the Fed as well as its new average inflation targeting framework
- Within FX, we favour Asian currencies, with a view that the global recovery will benefit Asian economies first, and are underweighting Latin America
The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.
The Invesco Emerging Markets Local Debt Fund uses derivatives (complex instruments) for investment purposes, which may result in the fund being significantly leveraged and may result in large fluctuations in the value of the fund.
Debt instruments are exposed to credit risk which is the ability of the borrower to repay the interest and capital on the redemption date.
Changes in interest rates will result in fluctuations in the value of the fund.
As a large portion of the fund is invested in less developed countries, you should be prepared to accept significantly large fluctuations in the value of the fund.
The fund may invest in certain securities listed in China which can involve significant regulatory constraints that may affect the liquidity and/or the investment performance of the fund.
Investments in debt instruments which are of lower credit quality may result in large fluctuations in the value of the fund.
The fund may invest in distressed securities which carry a significant risk of capital loss.