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New UCITS fund offers emerging markets with local currency twist


The global asset management firm with USD432.2 billion under management, Eaton Vance, is launching its popular Emerging Markets Local Income strategy as an Irish-registered UCITS fund.

The firm has been offering this strategy for 10 years. Mike Cirami is co-director of global income and portfolio manager on Eaton Vance’s global income team and is also responsible for leading the global income team, for buy and sell decisions, portfolio construction and risk management for the firm’s global income strategies. He focuses on emerging Europe, the Middle East and Africa.

He says: “Local currency at emerging market local debt level is an interesting asset class in that the returns can be compelling and potentially quite high.”

The fund is invested across a diverse group of assets, spread around 80 countries. “And these are quite differentiated,” Cirami says. “You aren’t buying the same assets correlated with traditional fixed income, US treasury markets or high yield so it can diversify one’s portfolio.”

However, he warns that despite the fact it’s fixed income, it’s not low risk fixed income. “Despite the fact it’s primarily government, these currencies can move so it has a profile more comparable to the equity markets or the risky part of the high yield market which helps diversify part of the risk part of one’s allocation.”

Emerging markets are a well-ploughed field these days but a favourite and less well-known investment destination is Serbia.

“One place that we like, and have for over half a decade, is Serbian local markets,” he says. “It’s a country that has been undertaking a significant amount of reforms over the last three to four years. The interest rates are still attractive relative to its peers in central Europe, and we believe there is still a convergence play left – at the same time the currency is attractively valued and we expect it to slightly appreciate against the Euro over coming years. Serbia can produce high single digit or maybe local double digit returns and it is uncorrelated with a lot of other emerging market or global assets.”

Eaton Vance has a team of 45 people located in various offices around the world doing research on emerging markets.

“We travel a lot and talk to policy makers and we do due diligence on the ground,” Cirami says. “It’s a big team with several people focusing on almost every country. There is always something going on, either a change of government, new policies or a financial crisis.

“We find the work interesting which is why we do it but it’s a diverse universe so a fruitful sandbox to play in and to invest in.”

Cirami reports that investors of all types are interested in the fund. “We manage investments for retail investors and large institutions. For many it’s a new asset class so helps diversification but the debt instruments have been around for a long time and are just starting to gain prominence over last five to 10 years as an asset class.”

He concludes: “People need to understand what we are talking about here in terms of the risk profile and what returns look like. This is not one step out of cash but part of the riskier component of the portfolio.”

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