Most of the popular high-yield strategies paid less than 4.5 per cent. Investors might be unlikely to buy racier bonds for yield alone, but it is a trait that may draw more interest to the EMD space.
In contrast with our own findings on funds’ performance, DFMs have tended to sit on the fence as far as currency is concerned. Asset Allocator analysis shows that wealth managers tend to back funds without an explicit currency bias. However, it is likely many portfolios are favouring hard currencies of their own accord. This includes those funds that can go anywhere in the EMD universe, such as M&G’s offering. Similarly, some fund names can be misleading. Barings EM Local Debt, for instance, uses a mixture of hard and soft currencies.
All of this variation will remind intermediaries that EMD is subject to many nuances, as well as broader factors beyond an individual government or company’s control. But as Table 1 shows, the high risks also come with big rewards.
