The objective is to outperform the benchmark, over using discretionary management on all bond markets from emerging countries.
With most investors back from holidays, September was marked by an avalanche of new issues bringing the tally YTD to a record. With USD 78bn of EM credit issuance, the monthly amount itself has broken all records since 2004. This supply was absorbed by the market as inflows are still coming into EM Debt funds. However the momentum and market balance seem to be getting more fragile going into the autumn. The latest moves in US rates do not help in this sense. Core rates readjusted substantially with US Treasury 10yr yields up more than 20 bps; the underlying strength of the US economy and the expected normalization of the Fed's policy came back to the foreground in a context of heavy positioning. However neither the latest missile tests from North Korea nor the Kurdish independence referendum were sufficient to have a material effect on our markets. EM hard currency debt was basically flat at -0.01% over the month (EMBI Global index) and local currency debt was down -0.34% (GBI-EM index). Our fund EdR Emerging Bond is up +0.40% (I share in USD). Despite some negative contribution from our Ukraine exposure our US treasury hedges did help along with some idiosyncratic positions like our Argentine GDP linked securities up close to 7%.Venezuelan debt was slightly up as the confirmations of some coupon payments and a 10% rise in oil were just enough to reassure investors ahead of the substantial payments due between the end of October and early November. The USD 3.5 bn due, essentially by state oil company PDVSA is a challenging amount but nonetheless achievable. Avoiding default there would buy the country some time as the redemption schedule is lighter in 2018. In the meantime discussions with the Russians about different financings are still ongoing. Negotiations with the opposition hosted by the Dominican Republic seem to be paused as some pre-conditions have not been met.Inflows into EM debt funds have already surpassed the USD 50 bn mark at this stage, putting them already above any of the past full years on record. Our very cautious positioning hasn't changed and if anything we are still inclined to reduce some of the more mainstream exposures we still have.
Share class (I-USD)
(1) The rating grades the funds on a scale from 1 to 7. This rating system is based on the average fluctuations of the net asset value over the past five years. It corresponds to the variation range of the portfolio upwards and downwards. If the net asset value is less than 5 years old, the rating is determined by other regulatory calculation methods. Historical data such as those used to calculate the rating may not be a reliable indication of the future risk profile. The current category is neither a guarantee nor an objective. Category 1 does not signify a risk-free investment.