Emerging Markets Debt: 3 Ways We Are Differentiated

Video Transcript

Marcelo Assalin, CFA, Partner
Head of Emerging Markets Debt Team

We are fundamental emerging markets debt investors. Our investment process is a combination of strong bottom-up focus on sovereign and corporate credit analysis complemented with top-down global macro views. We do have a very strong focus on high-yielding frontier markets debt countries, but we invest in that space with a very strong focus on risk management and diversification.

1. A beta-bucketing approach helps us seek to generate compelling risk-adjusted returns.

We believe that emerging markets debt is more than one single investable universe. We clearly identify three universes: a group of high-risk countries, a group of medium-risk countries, and a group of low-risk countries.

Why do we do that? We do that because of three reasons. The first one, it provides for a more efficient allocation of our risk budget across the risk spectrum. The second reason is that it provides for better relative value assessment because we compare countries of similar risk. And third, it provides for a better risk-management process because we can more clearly identify the different sources of risk that the portfolios are exposed to.

2. Dedicated investors like us seek to take advantage of disconnects between actual and perceived risk.

There is clearly a disconnect between risks and perception of risks when it comes to investing in emerging markets debt.

The asset class evolved tremendously over the years. Today, it’s more than one quarter of the global fixed-income universe, and yet it remains underinvested and underrepresented in global fixed income indices. And because of that, it’s less covered and is less understood.

Not many investors actively look at the asset class and that creates opportunities for dedicated investors like ourselves who have the ability to understand the asset class, to assess risks, and to translate this into long-term returns to our value and returns to our clients.

3. Our diverse team helps us stay on top of diverse opportunities.

There is not one single investable universe. There are several universes and requires a diverse mindset as well. A diverse set of skills.

The strength of our EMD capability that is based on the strength of the people within the team, the diversity of the people within the team, the strength of our investment process, and the strength of William Blair, which is an organization that has cutting-edge technology and state-of-the-art infrastructure.

And it's fascinating that every day has something new happening in the emerging markets debt world. And it's very dynamic, and it's never boring.

Disclosure

The views and opinions expressed are those of the speakers as of the date of publication, are subject to change without notice as economic and market conditions dictate, and may not reflect the views and opinions of other investment teams within William Blair. Factual information has been obtained from sources we believe to be reliable, but its accuracy, completeness, or interpretation cannot be guaranteed. This material may include estimates, outlooks, projections, and other forward-looking statements. Due to a variety of factors, actual events may differ significantly from those presented. This video has been provided for informational purposes only and not intended as investment advice or a recommendation of any particular strategy or investment product, or as an offer to buy or sell any securities or related financial instruments in any jurisdiction. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Investing involves risks, including the possible loss of principal. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks. These risks may be enhanced in emerging markets. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Diversification does not ensure against loss. Past performance is not indicative of future results. This material is a marketing communication and is not intended for distribution, publication or use in any jurisdiction where such distribution or publication would be unlawful.