Fund Objective

To achieve long term total returns primarily through investment in public sector, sovereign and corporate bonds issued by emerging market borrowers, which are typically countries that are classified as low or medium income by the World Bank and in associated derivatives.

View on Past Performance

For most of the month, local emerging market debt rallied on positive economic news, as well as a market friendly election outcome in Turkey. However, late in July, risk aversion spilled over from the US credit markets, as well as emerging dollar debt markets. Overall though, local debt ended the month in positive territory, while dollar debt lost just over 1%, despite a substantial rally in US Treasuries.The JP Morgan GBI-EM Global Diversified Index returned 0.9% in US dollars over the month, and is still up almost 10% over the year to date. Over the past month, Turkey and Brazil were once again among the top performers at 4% and 2.7%, respectively. The Czech Republic showed exceptional performance, returning 4.7% after several weak months. Israel again took bottom spot with a fall of 3.3% for the month, with Indonesia and Peru not faring much better.Performance for the month July was relatively unexciting with the Fund falling 0.7% versus benchmark fall of 0.4%. The risk reversal at the end of the month hurt our positions. In particular, our long position in Argentinean dollar bonds detracted from returns. A strong positive reversal in the Czech koruna also detracted from performance, as we were underweight in that currency. Our positions in Turkey as well as various African markets performed well.

Future Expectations

Recent weakness in emerging markets has given local emerging market debt some breathing space in terms of valuations and positioning. Although we think that late-cycle risks are increasing, which is particularly visible in rising volatility in financial assets, we are still cautiously positioned for further strength as fundamentals remain favourable and flows are expected to stay positive.The main driver of performance for us, however, is expected to be country and currency selection as we recognise that the risks of a more prolonged setback are real. We are looking for buying opportunities in those countries where risk aversion has created value.

Fund Details