EM debt: yields are back!

How to invest with flexibility in this segment?

Renewed Opportunities in Emerging Markets:

Over the past year, Central Banks’ interest rate hikes and the war in Ukraine, led to a significant volatility shock both in emerging and developed markets. Meanwhile, escalating worries of a global recession were stoked by increasing rates, high commodity prices, a slow Chinese economy recovery, and uncertainty about Europe's energy supply.

Indeed, in 2020, bond markets have had their worst bear market since 1929 and this environment has not spared emerging markets. To illustrate, both the external sovereign index (EMBIG) and the local sovereign index (GBI-EM) had one of their worst years since creation. But thanks to this violent shock, the EM world now offers very attractive opportunities for the following reasons:

  • The three main drags on emerging markets in 2022 (the Fed, China and the war in Ukraine) are all fading away at different speeds.

  • EM debt looks very appealing first because of the high carry in the double-digit territory and also because the inflation and fiscal fundamentals behind them are quite solid given the tight policies following the pandemic.

Take advantage of the best of both worlds

The advantage of being benchmark agnostic is that you can benefit from the best of both local and external debt. Our flexible mandate hence allowed us to opt out of negative yielding real interest rate countries from local and external debt indexes, such as in Poland, India, Arabian gulf etc. (something that benchmarked funds cannot do).

Furthermore, it is important to be active in terms of duration management. Therefore, we will favour mainly local debt exposure as well as external debt in laggard names such as central European names. In that context, we believe that the early hikers remain interesting, but also some late comers to the hiking cycle could present a good opportunity such as Mexico.

We also favour commodity exporters with relatively high spreads that offer protection against rising rates and benefit from the commodity boom thanks to their export balances (mainly LATAM & Africa). These countries should continue to benefit from higher commodity prices as well as the necessary investments from commodity importing countries to compensate for the lack of production from Russia and Ukraine in the coming months.

*Average yield of Czech Republic, Poland and Hungary Bonds
Sources: Carmignac, Bloomberg, 30/12/2022.

FX: Additional performance driver & decorrelation

Being able to actively manage currencies is not only a real additional performance driver but also an important decorrelation factor. We currently favour the EMEA region (CZK, HUF) and the LATAM region (BRL, CLP, MXN), where we can find high carry opportunities.

In addition, our flexible mandate enables us to adjust the risk of our portfolio by tactically adding or reducing our exposure to hard currencies such as the EUR, USD or JPY in order to take advantage from different FX environments. As an example, over 2022 our EM FX bucket has been a good contributor benefiting from the weak dollar environment.

Sources: Carmignac, Bloomberg, 31/01/2023.

Proof of concept: Carmignac P. EM Debt

If you take any random 3-year rolling period (which is the recommended investment horizon for the fund) since the EM debt fund was launched 5.5 years ago (31/07/2017), the fund actually delivered on its dual mandate by delivering positive performance and always beating its reference indicator (local currency bond index), despite two major crises.

Note that the fund also always beats the other EM benchmark of hard currency debt (EMBIG index).

Source: Carmignac as at 31/01/2023 - FW EUR Acc Share class
¹JP Morgan GBI – Emerging Markets Global Diversified Composite Unhedged EUR Index. ²EMBIG index (JPEIDHEU Index)
Past performance is not necessarily indicative of future performance. The return may increase or decrease as a result of currency fluctuations. Performances are net of fees (excluding applicable entrance fee acquired to the distributor

Now if we look at what drove the recent performance, it is mainly driven by EM local interest rates. These sold off to levels disconnected from the inflation and fundamental realities last year and started reverting to reality at the end of Q3 and into this new year.

As a reminder, the majority of EM countries have not injected stimulus like their developed peers during the pandemic and their inflation as a consequence did not move up as much.

Lastly, it should be noted that the strategy has proven to be effective regardless of the fund's category.

¹JPM GBI-EM Global Diversified TR EUR. 31/01/2023
FW Share Acc. Returns in EUR. Sharpe ratio calculated from weekly returns. Risk-free rate: EONIA capitalized daily. Past performance is not necessarily indicative of future performance. Performance is net of fees (excluding any entry fees charged by the distributor). Performance may increase or decrease due to currency fluctuations. Carmignac Portfolio EM Debt FW EUR Acc (ISIN: LU1623763734) was in the Morningstar Alt - Long/Short Credit category but was moved to the Global Emerging Markets Bond category at the beginning of February 2020, so the results were simulated in this category.

Since launch (31/07/2017), the Fund has had a solid track record as it ranks 1st decile over its recommended investment horizon and since creation according to Morningstar both in terms of returns and Sharpe ratio.

Furthermore, Joseph Mouawad is rated “AAA” and ou EM expertise is classified “GOLD” in the “Bond - EM Global Hard Currency” group rating by Citywire.

It should be noted that this strong track record was not achieved at the expense of excessive risk, as demonstrated by our drawdowns in line with our peers.

Carmignac Portfolio EM Debt

Benut alle kansen die zich op de opkomende obligatiemarkten voordoen

Ontdek de pagina van het Fonds

Carmignac Portfolio EM Debt FW EUR Acc

ISIN: LU1623763734

Het indicator kan variëren van 1 tot 7, waarbij categorie 1 overeenkomt met een lager risico en een lager potentieel rendement, en categorie 7 met een hoger risico en een hoger potentieel rendement. De categorieën 4, 5, 6 en 7 impliceren een hoge tot zeer hoge volatiliteit, met grote tot zeer grote prijsschommelingen die op korte termijn tot latente verliezen kunnen leiden.

Aanbevolen minimale beleggingstermijn

Laagste risico Hoogste risico

1 2 3 4 5 6 7
Voornaamste risico's van het Fonds

Risico's die in de indicator niet voldoende in aanmerking worden genomen:

KREDIETRISICO: Het kredietrisico stemt overeen met het risico dat de emittent haar verplichtingen niet nakomt.

TEGENPARTIJRISICO: Risico van verlies indien een tegenpartij niet aan haar contractuele verplichtingen kan voldoen.

RISICO VERBONDEN AAN BELEGGINGEN IN CHINA: Specifieke risico's verbonden aan het gebruik van het platform Hong-Kong Shanghai Connect en andere risico's verbonden aan beleggingen in China.

LIQUIDITEITSRISICO: Risico dat tijdelijke marktverstoringen de prijzen beïnvloeden waartegen een ICBE zijn posities kan vereffenen, innemen of wijzigen.

Inherente risico's:

OPKOMENDE LANDEN : De netto-inventariswaarde van het compartiment kan sterk variëren vanwege de beleggingen in de markten van de opkomende landen, waar de koersschommelingen aanzienlijk kunnen zijn en waar de werking en de controle kunnen afwijken van de normen op de grote internationale beurzen.

RENTERISICO: Renterisico houdt in dat door veranderingen in de rentestanden de netto-inventariswaarde verandert.

WISSELKOERS: Het wisselkoersrisico hangt samen met de blootstelling, via directe beleggingen of het gebruik van valutatermijncontracten, aan andere valuta’s dan de waarderingsvaluta van het Fonds./size]

KREDIETRISICO: Het kredietrisico stemt overeen met het risico dat de emittent haar verplichtingen niet nakomt.

RISICO VAN KAPITAALVERLIES: Dit deelbewijs/deze aandelenklasse biedt geen garantie voor of bescherming van het belegde kapitaal. U ontvangt mogelijk niet het volledige belegde bedrag terug.

Meer informatie over de risico's van het deelbewijs/de aandelenklasse is te vinden in het prospectus, met name in hoofdstuk "Risicoprofiel", en in het document met essentiële beleggersinformatie.

Carmignac Portfolio EM Debt FW EUR Acc

ISIN: LU1623763734
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (YTD)
Year to date
Carmignac Portfolio EM Debt FW EUR Acc - - - +1.10 % -9.97 % +28.88 % +10.54 % +3.93 % -9.05 % +15.26 % +0.37 %
Referentie-indicator - - - +0.42 % -1.48 % +15.56 % -5.79 % -1.82 % -5.90 % +8.89 % +0.38 %

Scroll rechts om de volledige tabel te zien

3 jaar 5 jaar 10 jaar
Carmignac Portfolio EM Debt FW EUR Acc +1.23 % +6.93 % -
Referentie-indicator +0.43 % +0.15 % -

Scroll rechts om de volledige tabel te zien

Bron: Carmignac op 28/06/2024

Instapkosten : Wij brengen geen instapkosten in rekening. 
Uitstapkosten : Wij brengen voor dit product geen uitstapkosten in rekening.
Beheerskosten en andere administratie - of exploitatiekos ten : 1,05% van de waarde van uw belegging per jaar. Dit is een schatting op basis van de feitelijke kosten over het afgelopen jaar.
Prestatievergoedingen : Er is geen prestatievergoeding voor dit product. 
Transactiekosten : 0,57% van de waarde van uw belegging per jaar. Dit is een schatting van de kosten die ontstaan wanneer we de onderliggende beleggingen voor het product kopen en verkopen. Het feitelijke bedrag zal varieert naargelang hoeveel we kopen en verkopen.