Event Voice: A Distinctive Approach to Emerging Markets Debt
Michael Cirami, Portfolio Manager of the Artisan Emerging Markets Debt Opportunities Strategy
12 June 2025
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8 min read
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Artisan Partners talk about the Artisan Emerging Markets Debt Opportunities Strategy at the Fixed Income event
What are you trying to achieve for investors and what role could your fund play in an investor's portfolio? How do you structure this fund?
The Artisan Emerging Markets Debt Opportunities Strategy is a dynamic, actively managed portfolio that invests in a broad range of emerging markets debt including sovereign and corporate credit, local rates and currencies. The portfolio is constructed bottom-up and is not limited by the constraints of a benchmark with respect to investment positions. This flexibility enables the team to dynamically allocate capital between risk factors based on evolving market conditions, seeking to capture the best opportunities available within the emerging markets debt space.
Strategy Highlights:
Benchmark agnostic with respect to investment positions and utilizes the investment team's opportunistic approach for idea generation.
Aims to manage downside risk and limit unintended risks. One of the primary methods for doing this is by hedging developed market risk.
Seeks to outperform its benchmark over an investment cycle of 2-3 years.
The EMsights Capital Group aims to manage downside risk and limit unintended risks, seeking to create a smoother and more pleasant experience in emerging markets debt. The Strategy seeks to achieve this by adopting a broad investment universe and an idea generation framework that is focused on deep research. Additionally, the Strategy can hedge developed markets risk, specifically US duration and euro risk embedded in Eastern European currency exposure.
What are the big opportunities and risks for your strategy in 2025?
As we step into 2025, there are many unknowns. The Trump administration introduces the possibility of unexpected policy shifts. Meanwhile, the Fed's rate cutting cycle appears to be more limited than previously anticipated. Geopolitical risks are intensifying, raising more questions than answers. Credit spreads continue to screech tighter, and valuations remain full. Our outlook for EMD has turned even more cautious, as we enter the period of the great unknown.
The timing and scope of these policy shifts remain uncertain, and this ambiguity is likely to persist. However, such uncertainty within the asset class can also create investment opportunities. Divergence within the emerging markets debt asset class continues to grow, underscoring the importance of picking the right names within the space — and avoiding the wrong names. Identifying strong opportunities and avoiding pitfalls has been crucial for outperformance, especially over longer-term horizons.
At the country level, we believe there is a rich opportunity set with countries facing vastly divergent fundamentals and paths. In Latin America, regional governments will be focused on how to engage with the US under the second Trump Administration, particularly on tariffs, migration, and security. Trump's new foreign policy team has a strong Latin American background, suggesting a higher level of focus relative to other recent US administrations. How the US-Mexico relationship proceeds will be particularly market relevant. Dominant themes in Central & Eastern Europe will be indirect fallout from economic and political stresses in Western Europe, and a new phase in the war in Ukraine, precipitated by Donald Trump's attempts to end hostilities. The Middle East will continue to be rocked by war on many fronts. Key themes in Asia center on the potential impacts of the Trump administration and the uncertain path of the Fed. And finally in sub–Saharan Africa, idiosyncratic events, such as elections, debt restructurings and fiscal consolidation objectives will shape the region's trajectory in 2025.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
Our outlook on emerging markets (EM) debt looking into 2025 remains cautious as uncertainty and geopolitical risks continue to grow. As always, we believe the rich and diverse EM universe continues to present opportunities for active investors.
EM credit spreads remain tight and the potential for continued spread tightening overall looks limited. However, select opportunities within the high yield sovereign and corporate segments remain the most attractive. Some countries and companies continue to travel down a mild reform path, presenting interesting opportunities despite overall tightness in EM credit.
EM currencies also continue to have some of the more attractive opportunities within EM debt. While the strong US dollar environment has weighed on EM FX and is expected to continue doing so, several countries have adjusted their macro policies and allowed their currencies to weaken to more attractive levels.
Investment Risks: The value of portfolio securities selected by the investment team may rise or fall in response to company, market, economic, political, regulatory or other news, at times greater than the market or benchmark index. Non-diversified portfolios may invest larger portions of assets in securities of a smaller number of issuers and performance of a single issuer may have a greater impact to the portfolio's returns. International investments involve special risks, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging and less developed markets, including frontier markets, and include new and rapidly changing political and economic structures, which may cause instability; underdeveloped securities markets; and higher likelihood of high levels of inflation, deflation or currency devaluations. Fixed income securities carry interest rate risk and credit risk for both the issuer and counterparty and investors may lose principal value. In general, when interest rates rise, fixed income values fall. High yield securities (junk bonds) are speculative, experience greater price volatility and have a higher degree of credit and liquidity risk than bonds with a higher credit rating. Use of derivatives may create investment leverage and increase the likelihood of volatility and risk of loss in excess of the amount invested. Investments will rise and fall with market fluctuations and investor capital is at risk. Investors investing in strategies denominated in non-local currency should be aware of the risk of currency exchange fluctuations that may cause a loss of principal. These risks, among others, are further described in Artisan Partners Form ADV, which is available upon request. This is a marketing communication.
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