MERIAN
EMERGING MARKET DEBT FUNDS

Re-appraising emerging market bonds.

Important Information

  • The Fund invests in a portfolio of fixed and variable rate debt securities issued in the emerging markets which are subject to interest rates and credit risks.
  • It may invest in emerging markets which are illiquid and volatile, subject to risk factors not typically associated with investments in developed markets.
  • It may invest in below investment grade and unrated debt securities which may have a higher risk exposure than investment grade securities.
  • It may invest up to 30% of its net asset value in non-investment grade securities of a single sovereign issuer (for countries included in the JP Morgan EMBI Global Index). Such potential sovereigns include Russia, Venezuela and Argentina. Concentration of such investment may cause the Fund to be subject to increased credit risk, sovereign risk and risk of default by the relevant sovereign issuer which may result in significant loss to investors.
  • It may be subject to the risks of investing in mortgage-backed and asset-backed securities.
  • It may invest substantially in financial derivative instruments for investment purposes. Such investments may involve risks (e.g. counterparty, leverage and liquidity risks) that could result in significant loss or total loss. Dividends may be paid out of gross income while all or part of the fees and expenses of the Fund are charged to/paid out of the capital, resulting in an increase in distributable income for the payment of dividends and therefore the Fund may effectively pay dividends out of capital. This amounts to a return or withdrawal of part of an investor’s original investment or from capital gains attributable to that original investment. This may result in an immediate reduction in the net asset value per share.
  • Investment involves risk. Investors should read the offering document of the Fund for further details including the risk factors.

 

WE BELIEVE EMD IS IN A SWEET SPOT

The US Fed is striking a dovish tone, which should provide additional support to emerging market sovereign bonds, which would, in some cases, be supported by a softer dollar.

Against the backdrop of “secular stagnation,” the yields available from emerging market debt (EMD) are attracting increasing attention …

Source: Bloomberg as at 28/01/2020.

A STRONG CASE FOR BOTH PERMANENT AND TACTICAL ALLOCATIONS

Beyond cyclicality, EMD offers a compelling risk/return profile, but the key is to understand the different roles hard- and local currency debt can play.

HARD CURRENCY

Hard currency EMD compares favourably with other risk assets in terms of both historical investment returns and volatility (the extent to which investments can fall or rise).

Return vs. volatility analysis

Source: Bloomberg as at 29/07/2019.

Past performance is not a guide to future performance. The value of investments can go down as well as up and is not guaranteed. 

LOCAL CURRENCY

Foreign exchange exposure through local currency EMD offers increased volatility, and potentially attractive returns in rising markets…

                            Year

 

Source: Bloomberg as at 31/12/2019.

…but the key is to allocate to it in a tactical way, recognising the impact of both local political and global macro factors (such as the fortunes of the US dollar and commodity prices) on emerging market currencies.

WE EMPLOY A ROBUST AND REPEATABLE INVESTMENT PROCESS

Emerging market debt makes up a diverse investment “universe.” We believe that the asset class demands a rigorous, fundamental approach to portfolio construction and stock selection, and that quantitative techniques can play an important role in validating an investment thesis, helping to ensure that human error does not result in unintended exposures and risks being taken in the portfolio.

The team conducts regular and frequent research trips on the ground to understand policy markers’ reaction function and policy credibility:

 

 

Source: MGI 01/01/2019 – 31/12/2019.

A NIMBLE APPROACH, RIPE FOR A MARKET WHERE DECISIVENESS IS KEY

In this asset class, we believe large funds managed by sizable, widely dispersed teams may be at a disadvantage, given slower decision-making, communication and implementation. Our team can react and adjust quickly to market developments, bound neither by rigid investment committees or analysts competing to get their ideas into the portfolio, nor by the size of the fund, which can unwind positions even in a difficult less liquid environment.

CASE STUDY: OUR PROCESS IN ACTION

This case study shows how the investment team applied its process over time to an individual issue (here, a Brazilian local-currency bond). In this case, the opportunity was identified during a research trip ahead of the 2018 Brazilian presidential election. Evolving market sentiment enabled the team to adjust positioning over a roughly nine-month period, adding incremental value through a combination of active management of duration (the sensitivity of bonds to changes in interest rates) and security selection.

 

BRAZIL LOCAL BRL BOND YIELD

Source: Bloomberg as at 03/07/2019.

Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rate changes may cause the value of overseas investments to rise or fall.

 

This communication provides information relating to Merian Emerging Market Debt Fund (the “Fund”), which is a sub-fund of Merian Global Investors Series plc. Merian Global Investors Series plc is an investment company with variable capital established as an umbrella fund with segregated liability between sub-funds which is authorised and regulated by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended. Registered in Ireland under

registration number 271517. Registered office: 33 Sir John Rogerson’s Quay, Dublin 2, Ireland.

 

In Hong Kong, this communication is issued by Merian Global Investors (Asia Pacific) Limited. Merian Global Investors (Asia Pacific) Limited is licensed to carry out Type 1 and Type 4 regulated activities in Hong Kong. This communication has been prepared for general information only. It does not purport to be all-inclusive or contain all of the information which a proposed investor may require in order to make a decision as to whether to invest in the fund. Nothing in this document constitutes a recommendation suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. No investment decisions should be made without first reviewing the offering document (including the risk factors) and the key facts statement of the fund (if applicable) which can be obtained from www.merian.com. This communication has not been reviewed by the SFC. The investment returns are denominated in share class dealing currency, which may be a foreign currency. If so, US/HK dollar-based investors are therefore exposed to fluctuations in the US/HK dollar/foreign currency exchange rate. The Fund is authorised by the Securities and Futures Commission (“SFC”) in Hong Kong. Such authorisation is not a recommendation or

endorsement of the Fund nor does it guarantee the commercial merits of the Fund or its performance. It does not mean the Fund is suitable for all investors nor is it an

endorsement of its suitability for any particular investor or class of investors.

 

The Fund may be more than 35% invested in Government and public securities. These can be issued by other countries and Governments. Your attention is drawn to the stated investment policy which is set out in the Fund’s prospectus.

 

 

DAILY PRICE AND DOCUMENTS
THE EMERGING MARKET DEBT FUND TEAM
Delphine Arrighi

Portfiolio manager - emerging market debt

Delphine joined the company in 2015 and manages our emerging market debt funds.

Victor Lopes

Senior sovereign analyst

Victor joined the business in 2019 as a senior sovereign analyst in the emerging market debt team.

Patty Cao

Assistant portfolio manager

Patty joined the company in May 2018 from CQS, where she was an analyst and junior trader for the emerging markets (ex-Asia) portfolio.

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