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Mastering emerging market debt

Investments
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October 7, 2019

Now is the time for assets owners to rethink allocations to emerging market debt.

The emerging world is a large and growing part of the global economy and consequently commanding larger allocations, providing greater justification to design an optimal asset mix and investigate best in class implementation. At the same time, traditional active management solutions that provide broad exposure have delivered mediocre performance outcomes, with only c. 20% of these solutions delivering excess returns net of fees.

Emerging market debt (EMD) should hold a strategic role in any diversified portfolio, but it must be done thoughtfully. It is not a single opportunity. Africa, Latin America, Central Europe, the Middle East and Asia have little in common. Managers need to know about regions and countries, but also interest rates, currencies and companies. Our preferred implementation brings together these specialists and best equips investors to fully capitalise on opportunities throughout the cycle. In our view, this maximises alpha potential, mitigates downside risks and retains attractive asset class returns.

There are a range of different models to consider for approaching the emerging market debt space given differing governance budgets, including one-stop shops and highly diversified, multiple manager solutions.

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