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Emerging Markets
Debt

Seeking to deliver alpha through our expertise in a misunderstood market

Reasons to invest

Alpha from multiple sources: sovereign, quasi, and corporate credits

Extensive sovereign and corporate research capabilities with geopolitical and industry specialisation

Global themes permeate the process and influence long-term investment decisions

Capturing themes and opportunities implemented through strategic, tactical, and opportunistic positioning, within a rigorous risk management framework

Seasoned team with complementary international backgrounds providing unique perspective on international markets

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Adding EMD to an investment portfolio can provide essential diversification. In our view, and given that the low-yield environment is here to stay, not holding EMD in a portfolio is a risk in itself.

Mohammed Elmi, CFA, Lead Portfolio Manager

Why Emerging Market Debt?

Our highly blended approach and rigorous research-driven process allows us to access a broad range of opportunities and exploit inefficiencies in this still-misunderstood market.

Our seasoned EM fixed income team comprises managers and investment professionals with complementary international backgrounds, each of whom brings a unique perspective on global markets.

We combine our bespoke ESG scoring system with the might of Federated Hermes’ industry-leading ESG tools and expertise. This powerful ESG input into the strategy allows our managers to remain highly connected to the sustainability profile of every company we invest in.

We take a unique and dynamic approach to risk. Supported by industry-leading proprietary credit tools, our team can identify risks early while still seeking to maximise returns through intricately researched country and security allocation.

How we invest

Our research-driven approach starts with taking a global macro view, followed by country selection and finally, security selection. Our rigorous research is carried out using our macro ‘vulnerability scoring matrix’ to assess four factors: central bank credibility, political stability, external accounts, and fiscal metrics. We weigh these factors equally and combine them to produce a score that is updated quarterly. While this stage of the process helps us to quantify risk, the output is just one component in our overall credit analysis.

Given the impact of global macro themes and idiosyncratic factors on the region, it has seldom been more important for investors to have the flexibility to invest across differing EM asset classes. Our blended approach offers exposure to the region’s corporates, sovereign and quasi-sovereign bonds.

Our bottom-up approach is applied to both sovereign and corporate credit analysis. At this stage of the process, we aim to assess the creditworthiness of underlying borrowers through financial analysis, business model analysis, quality of management, ESG scoring and regular meetings. To allow the investment team to react nimbly to adverse developments in the credits they follow, we limit exposure to smaller, higher yielding, lower-rated issuers to 25 basis points or less.

Investment philosophy

We believe that EM fundamentals are often misunderstood. The region’s sovereigns have lower debt loads than developed market sovereigns, and have the capacity to grow faster out of debt.

By taking a research-driven approach in this highly misunderstood market, we seek to capitalise on the region’s positive demographics and the long-term secular trends. Through country and individual security allocations, and a unique approach to managing risk, we aim to deliver superior returns with less volatility.

We have also developed a proprietary ESG research strategy that is designed specifically for the region and includes working with representatives at the country, industry, and company level to identify the most material ESG-related factors.

Investment process

The key to our investment process is in research

Team

Mohammed Elmi, CFA

Lead Portfolio Manager

19 years' industry experience

Jason DeVito, CFA

Lead Portfolio Manager

21 years' industry experience

Ihab Salib

Portfolio Manager

29 years' industry experience

Our Purpose

To deliver Sustainable Wealth Creation

Like all our investment capabilities, Federated Hermes Emerging Market Debt aims to deliver Sustainable Wealth Creation: the generation of wealth through investments that enrich investors, society and the environment over the long term.

Our business provides three equally powerful pathways to achieving this aim. Emerging Market Debt features in the Active ESG route.