Emerging
Markets
Debt
Seeking to deliver alpha through our expertise in a misunderstood market
Reasons to invest
Overview
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.
Why Emerging Markets 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
Senior Portfolio Manager, Head of International Fixed Income Group, Federated Hermes
Lead Portfolio Manager, Emerging Markets Debt
Lead Portfolio Manager, Emerging Markets Debt, Federated Hermes
Product information
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