We are honoured that Morgan Stanley's Emerging Markets Debt Opportunities Fund ("EMDO") was the winner in the Global Emerging Markets Bond category, at the Investment Week Fund Manager of the Year Awards (FMYA) 2025. To win again after taking home the trophy in 2023 is a testament to the team's distinct competitive advantages that have underpinned the team's investment philosophy for forty years.
EMDO is managed with the intention to deliver the benefits of owning emerging markets debt: portfolio diversification*, enhanced returns and increased income, in the most risk-aware manner possible. It does so by hunting for the best risk-adjusted opportunities across the broadest spectrum of countries and corporates possible, hedging developed markets' risks embedded in emerging markets debt securities, and holding itself accountable for its Sharpe Ratio in absolute terms and relative to peers. Ideally, investors will consider it a single fund solution for their emerging markets debt allocation.
And while EMDO continues to push the rock up the proverbial hill; encouraging investors to find a permanent home for emerging markets debts in their portfolios, for those that are more tactical in their allocations, the case for adding emerging markets local debt is arguably the most favourable in more than a decade.
Please consider the two risks that that drive performance: currency and local interest rates.
The tailwinds for strengthening emerging markets currencies include: improving country fundamentals following what has been a challenging macro environment so far in the 2020s; persisting relative attractive valuations lagging what has been a sharp appreciation in developed markets currencies versus the U.S. dollar; shifting U.S. fiscal, monetary and trade policies increasingly favoring a weaker U.S. dollar; and a deteriorating positive correlation between U.S. treasury yields and the U.S. dollar. While anticipating the inevitable depreciation of the U.S. dollar has been a bit like waiting for Godot the last decade, this is the best mix of macroeconomic and country fundamentals the team has observed since the go-go days of emerging markets debt in the early 2010s.
Local interest-rate risk is supported by real yields at absolute levels last witnessed during the depths of the global financial crisis, and at relative levels near prior cyclical highs. Notably, as inflationary pressures grew earlier in the decade, most emerging market central banks tightened policy well before developed markets central banks, and have been hesitant to ease, so nominal rates have remained high while inflation has fallen dramatically. If the U.S. further eases monetary policy, the real yield cushion likely gives central banks the room to cut rates without harming their currency, and as currencies tend to appreciate when growth improves any easing from central banks that promotes growth could strengthen emerging markets currencies. We believe this combination of probable currency appreciation and potential gains from falling interest-rates, makes emerging markets local debt especially attractive for the tactical investor.
Morgan Stanley's Emerging Markets Local Income Fund ("EMLI") is an appealing option for investors to harness this tactical opportunity. The fund was the winner of Investment Week's Fund Manager of the Year Awards in for Emerging Markets Debt in 2020 and the risk-adjusted performance since continues to place the fund near the top of the relative ranks. In contrast to EMDO, EMLI is benchmark-aware, seeking to deliver a tight beta range relative to its index, relying on country and security selection to be the primary driver of alpha. Yet consistent with EMDO, the fund harvests opportunities well beyond the limited number of countries in the index, isolates specific risk factors, i.e. currency and duration, and utilises the team's trading and operational expertise. As evidence, Egyptian T-bills, currency-hedged Peruvian bonds, and bespoke Uzbekistani local-currency bonds are some of the top active positions as of the end June 2025. With a narrow beta range, the fund's success is measured by information ratio in absolute and relative terms. Further, its historical upside-capture greater than 100% makes it an attractive option for the tactical investors seeking to harness the present moment.
Again, the team is honored to have won the Investment Week award and is grateful to the panel of judges for recognizing EMDO's success in delivering the benefits of emerging markets debt in the most risk-aware manner possible. Investors who prefer a permanent, strategic allocation to the asset class via a blended mandate should kindly consider EMDO. Further, the tactical case for emerging markets local debt is the strongest it has been in over a decade, and the team humbly submits EMLI – a former FMYA winner – as competitive option to capture the opportunity.
*Diversification does not eliminate the risk of loss
Methodology and standard Important Information and Distribution
Fund Manager of the Year Awards - Methodology
Quantitative judging process - Performance screening criteria
Which funds are included?
Funds must meet the following criteria to be considered:
• UK authorised and FCA-recognised with distributor status.
• Must appear in Investment Association (IA) sectors linked to our categories, apart from the India category which is linked to the Morningstar India Equity category.
• £50m in size or above at 31 January 2025.
• Have a three-year track record at 31 January 2025 with the same managers/team. We will look at the record of named managers on the fund.
• Must be aimed at retail/wholesale investors. Funds aimed only at institutional or charities investors will not be included.
Scoring methodology
For the Equities, Bonds and Specialist categories
A weighted score is given to each fund's percentile ranking within qualifying Investment Association sectors over each of the three discrete years to 31 January 2025. These are sectors which we can map to our Fund Manager of the Year categories.
There is a 20% weighting to the percentile ranking during the 12 months to 31 January 2023, 30% to 31 January 2024, and 40% to the period to 31 January 2025. In addition, a 10% weighting is given to the fund's Sortino ratio to give an indication of relative risk.
This creates a combined score and the top scoring funds are then included in the shortlists for the awards.
For the Absolute Return and Managed categories
A weighted score is given to each fund's percentile ranking within qualifying Investment Association sectors over each of the three discrete years to 31 January 2025. These are sectors which we can map to our Fund Manager of the Year categories.
There is a 15% weighting to the percentile ranking during the 12 months to 31 January 2023, 25% to 31 January 2024, and 40% to the period to 31 January 2025. In addition, a 10% weighting is given to the fund's Sortino ratio to give an indication of relative risk and a 10% weighting to the average drawdown over the period.
This creates a combined score and the top scoring funds are then included in the shortlists for the awards.
Group of the Year
The shortlist for the Group of the Year category will be based on the number of shortlisted funds in the category lists.
Important Information and Distribution:
The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. Past performance does not guarantee future results.
This material is a general communication, which is not impartial and all information provided has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. Investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.
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