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March 2021 / VIDEO

Attractive Risk-Return Tradeoff in EM Corporates

A history of equity-like returns, with a fraction of the volatility


EM debt represents a large and diverse opportunity set. With over US$6 trillion of bonds outstanding it rivals both US investment-grade corporates and EM equity in scale. Furthermore, emerging corporate debt is over US$2 trillion in size. It's larger than both the sovereign market for EM and also larger than US high yield. However, investor allocations to emerging corporates are a fraction of those two categories. This is something that we feel will change in the years ahead. We feel advocacy for the EM credit category as an asset class will increase as clients better understand the quality of the income stream that underlies EM corporate debt.

EM corporate debt has high yields, but with an average investment-grade credit quality. Importantly, investors are obtaining that yield through harvesting risk and illiquidity premia in the triple B and double B credit categories primarily, whereas in other asset classes to obtain that same income stream you would need to take on either frontier market risk or triple-C bonds, both of which are fairly de-emphasised in the EM corporate  category.

We feel the relative quality of Emerging corporate debt has also been empirically evidenced through history and a 10-year risk-return profile: high returns with moderate level of volatility.  We do feel that this is something this likely to continue, because the average credit quality of the asset class has actually increased over time, because the vast majority of supply in recent years has come from the highest quality parts of EM, in particular Asia investment grade and Asia double B credit Emerging corporate debt is a reasonable allocation in a variety of interest-rate environments.

In a rising interest rate environment, it has lower duration than most other credit categories. In a falling interest rate environment, in particular where fears of recession are looming, keep in mind this is an average investment-grade quality asset class, so will likely outperform other higher-yielding asset classes as it has in prior periods of volatility in the last decade.



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Global Asset Allocation: March Insights
Class I USD
ISIN LU0596126465
A diversified portfolio of typically 100 to 150 securities in mainly corporate bonds from emerging market issuers. We would expect the bulk of value added to come from security selection, with the rest from sector selection. We employ a long-term investment horizon, combined with low portfolio turnover. View More...
3YR Return
Avg Coupon
Fund Size
Avg Maturity
8.86 yrs
Avg Duration
5.74 yrs


History, stability, cognitive diversity

History, stability, cognitive diversity

History, stability, cognitive diversity

In brief: three things that differentiate the Emerging Markets Corporate Bond Strategy

By Samy Muaddi

Samy Muaddi Portfolio Manager

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