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Emerging Markets Debt Local Currency

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Institutional Strategy > Fixed Income > Emerging Markets Debt Local Currency

Emerging Markets Debt Local Currency

Offers an opportunity to benefit from higher yields as well as currency and price appreciation in a rapidly expanding and under-researched emerging debt market

  • Investment approach utilizes multiple alpha sources by combining top-down asset class analysis with a bottom-up country, issuer and FX review to seek out attractive relative value
  • Investment universe includes local currency debt instruments—mostly from governments—and gives access to a large diversified set of emerging currencies
  • Early investors in EMD; team has been investing in local currency debt since 1998

Key Risks

Market Risk: The risk of a change in the value of a position as a result of underlying market factors, including among other things, the overall performance of companies and the market perception of the global economy.
Liquidity Risk: The risk that the portfolio may be unable to sell an investment readily at its fair market value.
Emerging Markets Risk: Emerging markets are likely to bear higher risk due to a possible lack of adequate financial, legal, social, political and economic structures, protection and stability as well as uncertain tax positions which may lead to lower liquidity. The value of a portfolio may experience medium to high volatility due to lower liquidity and the availability of reliable information, as well as due to the strategy's investment policies or portfolio management techniques.
Credit Risk: The risk that bond issuers may fail to meet their interest repayments, or repay debt, resulting in temporary or permanent losses to the portfolio.
Interest Rate Risk: The risk of interest rate movements affecting the value of fixed-rate bonds.
Derivatives Risk: The strategy may use certain types of financial derivative instruments (including certain complex instruments). This may increase the portfolio’s leverage significantly which may cause large variations in the value of investments. Investors should note that the strategy may achieve its investment objective by investing principally in Financial Derivative Instruments (FDI). There are certain investment risks that apply in relation to the use of FDI.
Counterparty Risk: The risk that the portfolio may be unable to sell an investment readily at its fair market value.
Operational Risk: The risk of direct or indirect loss resulting from inadequate or failed processes, people and systems including those relating to the safekeeping of assets or from external events.
Currency Risk: Investments in a currency other than the base currency of the portfolio are exposed to currency risk. Fluctuations in exchange rates may affect the return on investment. If the currency of the portfolio is different from your local currency, then you should be aware that due to exchange rate fluctuations the performance may increase or decrease if converted into your local currency.

Overview

Investment Philosophy

Market mispricing allows managers to produce alpha opportunities through fundamental research.

  • Emerging markets debt is a generally improving asset class that is less efficient than developed debt markets
  • Active management is the best way for investors to access the full potential of the asset class
  • Bottom-up and top down expertise increases understanding of performance drivers and improves decision making quality
  • An emphasis on fundamental research is the best way to uncover the potential of emerging markets debt
 

Investment Process

Top-down and bottom-up approach with multiple alpha sources allocated opportunistically

1. Top-Down Assessment of Global Market Conditions

Incorporates analysis of global economic drivers, individual country fundamentals, technical factors including supply and demand, and market pricing.

2. Bottom-Up Country /Issuer Credit/ Local Rates and EMFX Review

Includes assessment of currency drivers, analysis of local interest rate conditions, ESG signals, and individual instruments.

3. Strategy Setting, Risk Management and Portfolio Construction

Team combines top-down and bottom-up inputs with risk management to create a model portfolio.

4. Portfolio Customization Process and Performance Evaluation
  • Ongoing process and performance evaluation.
  • Portfolios are adjusted for client-specific guidelines.
 

Proven Multi-Site Approach

Our presence across three emerging markets time zones allows us 24 hour-a-day market coverage, access to local in-depth knowledge and research and timely execution of investment decisions.

Management

Gorky Urquieta
Co-Head of Emerging Markets Debt
26 Years of industry experience
7 Years with Neuberger Berman
Rob Drijkoningen
Co-Head of Emerging Markets Debt
30 Years of industry experience
7 Years with Neuberger Berman
Raoul Luttik
Senior Portfolio Manager
25 Years of industry experience
7 Years with Neuberger Berman