There are three reasons to consider an allocation to EM corporate debt: income, durable alpha and downside protection.
- With respect to income, there are $15 trillion of bonds globally with a negative yield. EM corporate debt has a yield north of 5.5%, and furthermore it is the fastest-growing supply of high income bonds in the market for the last 5 years.
- Secondly, with respect to durable alpha, in the EM corporate category the top quartile managers within it have consistently produced more alpha than other credit categories, and that speaks to the inefficiency in the asset class. Lastly, with respect to downside protection. There are a few different places to get a 5% - 6% income stream. Emerging corporates, very consistently in a period of negative return, preserve capital the best, and that has to do with the fact that there are less triple-C bonds than the overall market - less than 2% of the market is triple C rated credit category.
So again, to summarise that: income, durable alpha and downside protection are the real three merits of the category.
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