El Sturdza Investment Funds launched its EI Sturdza Strategic Quality Emerging Bond Fund last week to Swiss investors and Eric Vanraes, fund manager, told Funds Europe the reasons behind the launch.
The fund was launched due to low yields in other parts of the fixed income market and the Swiss firm wanted a strategy that would deliver yield and performance without sacrificing quality or liquidity. Vanraes also wanted to avoid high correlation with equity markets.
The fund is not available in local currency, despite indications that there is less currency risk now than there has been for some time. Vanraes said: “Due to international developments but firstly to the future slowdown of the US economy, the Fed will stay very accommodative. As a result there will be less currency risk and we think that most of the EM currencies have reached a bottom early this year.”
He said clients of El Sturdza, which is part of Swiss banking group Banque Eric Sturdza, have no appetite for local currency debt and managing debt issued in dollars is “what we do best”.
Political risk is a major consideration for emerging market investors. Vanraes said the decision to launch the fund had not been influenced by the level of political reforms.
“Having said that, once we build a portfolio, political risk is definitely a key feature of our risk model. Political risk is the major issue when you deal with emerging markets and each time you invest in Russia, Turkey, Brazil, Kazakhstan or South Africa, it means that you trust Putin, Erdogan, Temer, Nazarbaiev and Zuma!”
Possible increased appetite for emerging market assets due to the UK’s decision to leave the UK was not part of the reason, said Vanraes.
“There is no relationship between events like Brexit and our decision to launch this new fund. We started to think about the concept of high-quality EM debt in October-November 2015. At this time, nobody was talking about Brexit,” he said.
The fund contains bonds from predominantly BBB+ to BB+ rated issuers in fast growing global regions and is registered for sale in Switzerland with plans to expand the fund’s availability in other European countries.
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