08 June 2018
Not only do emerging markets now account for almost 50 per cent of global GDP, including the four fastest growing countries in the G20, they also represent 20 of the 32 teams playing in the 2018 World Cup.
Our team selection highlights the geographic diversity on offer in the EMD universe with representation across all major regions including Central Europe, the Commonwealth of Independent States, the Middle East, Africa, Asia and Latin America. The line-up also illustrates the broad opportunities across the asset class, with exposure to sovereign external debt, corporate bonds, currencies, short-dated T-Bills, local currency nominal duration and inflation-linked bonds.
The EMD World Cup portfolio combines the income stability and protection of defensive assets with exposure to high beta markets which boost the portfolio’s yield and potential returns. We’ve gone for a classic 4-4-2 team formation, where the attributes of each individual player complement the broader team.
The EMD story is not without risks at present, not least from G3 central bank liquidity withdrawal, rising US yields, a recovering US dollar and looming election uncertainties. Indeed, many of these risks are reflected in our current cautious tactical stance on the asset class.
However, what EMD does offer is access to high growth markets with favourable demographics and improved fundamentals in recent years. These factors, coupled with healthy nominal and real yield cushions compared to developed markets, can make EMD an attractive long-term option for investors. And significantly, in a world of rising volatility, the EMD universe can also provide a relatively uncorrelated source of income for global bond portfolios.
Careful individual player selection and overall team balance are crucial to building a winning World Cup team. Much the same philosophy applies to constructing an EMD portfolio. May the best team win!
The value of investments and the income from them can go down as well as up so you may get back less than you invest. Past performance is not a reliable indicator of future results.
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