Baring Asset Management, the international investment firm, has launched the Baring Emerging Markets Corporate Debt Fund.
The fund aims to maximise total return, consisting of income, capital appreciation and through the use of a currency overlay, by investing in emerging markets corporate debt securities.
The fund invests at least 70 per cent of its total assets at any time in emerging markets debt securities across a range of emerging markets and can invest in both investment grade and non-investment grade debt instruments.
Faisal Ali, manager of the Baring Emerging Markets Corporate Debt Fund, says: “In an environment of low yields and heightened equity market volatility, an increasing number of investors are becoming attracted to the robust fundamentals and income-generating potential of emerging markets corporate debt. Corporates have moved to take advantage of strong demand for higher yielding assets, and this favourable supply/demand picture has resulted in emerging corporate credit being one of the better performing areas of the fixed income universe in recent times.
“From a macroeconomic perspective, we recognise that ongoing events in Europe remain a cause for concern. We currently favour high quality, investment grade emerging market credits in this environment.”
The fund favours countries offering strong growth fundamentals and robust domestic demand. The manager likes India’s domestic dynamics and low export dependence, whilst in Brazil, it favours debt issued by companies in the consumer sector as these companies tend to enjoy direct exposure to a fast-growing middle class and rising real wages.
The Middle East has been the best performing region over the last year. The Dubai authorities, for instance, have made great strides in tackling the debt overhang of domestic corporates and Barings expects Middle East risk premium over US Treasuries to contract further over the rest of 2012.
Ali says: “Given the challenging outlook for global growth, we believe a strategy emphasising higher rated credits is most appropriate. However, markets have responded strongly to recent policy steps taken by the FED and ECB to deal with problems in their domestic economies. Improved economic data, particularly from China, would likely hasten a marked improvement in investor sentiment and lead us to become more positive on lower rated credits.
“Though the fund is denominated in US Dollars, we look for enhanced returns by using an innovative currency overlay, referencing the JP Morgan Emerging Markets Local Currency index to hedge the currency exposure back to EM local currencies. We believe most EM currencies should appreciate against developed market currencies over the long term.”