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 strategy is benchmark agnostic and is designed to be dynamic in its ability to invest across the Emerging Markets (EM) Debt universe in an unconstrained way.
Barings' Emerging Markets Debt Blended Total Return Fund is a diversified portfolio that invests primarily in debt instruments of Sovereign, Quasi-Sovereign, and Corporate issuers, denominated in any currency, including the local currency of the issuer. The investment objective of the strategy is to seek maximum total return, consistent with the preservation of capital and prudent investment management, through high current income generation and, where appropriate, capital appreciation.
The strategy employs an actively managed style that seeks to capitalise on relative value opportunities and inefficiencies across geographies, currencies, and capital structures. Barings tactically allocates to their best EM debt ideas by incorporating their underlying bottom-up fundamental research from each EM fixed income sub-strategy (Corporate, Sovereign, Local Rates and Currencies).
The global EM debt platform supporting the fund (covering both sovereign and corporate issuers) comprises 32 dedicated investment professionals based in Boston, London, Paris, Shanghai, Hong Kong and Hartford, CT (U.S.).
How are you positioning your portfolio in uncertain times?
The strategy is currently positioned to take advantage of attractively priced opportunities in countries and companies with strong fundamental value, many of which having been hurt by the broader market sell-off during the first half of 2022. The strategy is allocated ~40% to Corporate bonds, 32% to Sovereign hard currency (including the strategy's CDS overlay) and 25% allocated to local rates, while about 11% of the fund's assets are in cash - a strategic allocation to position the portfolio more defensively given the broader market uncertainty. In terms of EM FX exposure, the overall strategy is currently neutral while taking long and short FX positions in select currencies. We are long rates in select EM countries and have shifted some duration to inflation-linked bonds in Brazil, Colombia and Mexico as inflation remains persistent.
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.
One consequence of the war in Ukraine has been higher commodity prices and there are Corporates and Sovereigns who are beneficiaries of these disruptions, specifically crude exporters in Latin America and Africa. In addition, countries that are linked to and benefit from strong growth in the U.S. from remittances and tourism are becoming more attractive, such as Guatemala, Dominican Republic and Costa Rica.