AXA IM: A compelling case for short duration EM bonds

Text size

This is a sponsored article from AXA Investment Managers.

In the low yield environment, finding healthy sources of income remains a challenge. Emerging market (EM) bonds offer significantly better yields than their developed market peers, and may provide attractive risk-adjusted returns, particularly short duration EM bonds, according to AXA Investment Managers (AXA IM), one of the leading asset managers with strong expertise in short dated bonds.

“EM short duration offers a very attractive risk-return profile, benefiting from the low volatility landscape,” said Sailesh Lad, portfolio manager of AXA IM’s EM short duration bonds strategy.

“Not all investors wish to take duration risk in the environment of rising US interest rates and steepening yield curves, and this is where EM short duration bond funds come into their own,” added Lad, noting that EM short duration bonds are less sensitive to interest rate movements, while they offer clear visibility of cash flows.

EM bonds have significantly regained favour among investors over the past year on the back of improving fundamentals and a recovery in commodity prices.

According to fund data provider EPFR Global, EM bonds saw US$37.8 billion in net inflows in 2016.

Latin America looks attractive
Within the EM universe, AXA IM believes that Latin America, particularly Brazil, will provide the best risk-adjusted returns going forward.

Although Brazil’s volatile political environment has been in the spotlight for some time raising investor concerns, some large multinational export-oriented companies in the country are actually benefiting from the situation.

“The corporates in the different sectors that we have invested in have benefitted from the depreciating Brazilian real, meaning that their goods are more attractive for foreign purchasers and these names are not reliant on the domestic economy for revenues,” Lad said.

Combination of top-down and bottom-up analysis
Lad explains that his portfolios are managed using an amalgamation of top-down and bottom-up processes. Fundamentals remain the cornerstone of these assessments, followed by relative value.

“We are continually screening our investable universe for the most attractive names, but alongside this, we are conscious of liquidity in the market,” Lad said, adding that active management is particularly important when investing in emerging markets, which tend to be less efficient.

“As much as the EM universe is so vast and large with its own idiosyncratic dynamics, one thing remains and that is that one needs to be fully aware of developments in G3 markets.”

AXA IM is one of the market leaders in short duration fixed income strategies, managing over €25 billions (as at 31 July 2017) across ten short duration strategies since 2001.

Find out more about AXA IM short duration range

Sources: AXA IM as at October 2017

———

DISCLAIMER

This is for information purposes only and does not constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services and should not be considered as a solicitation or as investment advice.

The content herein may not be suitable for retail clients. No financial decisions should be made on the basis of the information provided.

In Singapore, this document has been issued by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W). In other countries, this document has been issued by AXA Investment Managers Asia Limited. References to “AXA IM Asia” below shall be references to AXA Investment Managers Asia (Singapore) Ltd. or AXA Investment Managers Asia Limited as appropriate. This document and the above-mentioned website have not been reviewed by the SFC.

This document has been prepared and issued for institutional/professional investors only, and not intended for general circulation. They are strictly confidential, and must not be reproduced, circulated, distributed, redistributed or otherwise used, in whole or in part, in any way without the prior written consent of AXA IM Asia. They are not intended for distribution to any persons or in any jurisdictions for which it is prohibited.

Such information may be subject to change without notice. The data contained herein, including but not limited to any backtesting, simulated performance history, scenario analysis and investment guidelines, are based on a number of key assumptions and inputs, and are presented for indicative and/or illustrative purposes only.

The information contained in this document is not an indication whatsoever of possible future performance and must be considered on this basis. Information herein may be obtained from sources believed to be reliable. AXA IM Asia has reasonable belief that such information is accurate, complete and up-to-date. Any views, opinions or recommendations (if any) that may be contained in such information, unless otherwise stated, do not reflect or constitute views, opinions or recommendations of AXA IM Asia.

This document has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person. Nothing contained within this document shall constitute an offer to enter into, or a term or condition of, any business, trade, contract or agreement with the recipient or any other party. This document shall not be deemed to constitute investment, tax or legal advice, or an offer for sale or solicitation to invest in any particular fund. If you are unsure about the meaning of any information contained in this document, please consult your financial or other professional advisers. The data, projections, forecasts, anticipations, hypothesis and/or opinions herein are subjective, and are not necessarily used or followed by AXA IM Asia or its affiliates who may act based on their own opinions and as independent departments within the organization.

Investment involves risks. You should be aware that investments may increase or decrease in value and that past performance is no guarantee of future returns, you may not get back the amount originally invested. Investors should not make any investment decision based on this material alone.

© 2017 AXA Investment Managers. All rights reserved.

This is a sponsored article from AXA Investment Managers.

Advertisement

Related Tags

Market