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Seeking alpha in EM local currency debt

A closer look at our investment approach

Key Insights

  • Two asset classes in one. When thinking about how best to allocate the client’s risk budget, we believe managers should approach bond and currency selection as separate decisions, with different primary objectives.
  • Two different decision processes. In bond selection we tend to take larger positions, and more directional exposures. In currency selection, we tend to take more diversified positions, with emphasis on both absolute and relative value positioning.
  • Getting currency risk right. Historically, coupon has been the highest-return, lowest-volatility component of the index return, while currency has accounted for the bulk of the volatility. We believe long-term outperformance in this asset class is not possible without getting risk right in currency.
  • Focus on idiosyncratic alpha. We build portfolios on bottom-up bond and currency selection. Active exposures beyond mainstream emerging markets (EMs) include selected frontier opportunities and non-benchmark assets. We seek to manage systemic exposure to external risks, such as commodity price fluctuations or market shocks.
  • Improving outcomes with relative value pairs. Especially in currency management, we utilize relative value pairings to exploit correlations between assets and reduce portfolio volatility; to earn carry from high- versus low-yielding currencies; and generally to express fundamental views in a way that makes efficient use of the client’s risk budget.
  • Consistent track record. Over time, our approach has translated into consistent alpha generation, notably in the currency portion of our portfolio. Our attractive long-term information ratio and our up/down capture in different.


Read the full document of Seeking alpha in EM local currency debt (PDF).



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The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.

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The Emerging Markets Local Currency Bond Composite seeks to maximize total return by investing primarily in a widely diversified, global portfolio of bonds and other fixed and floating rate securities issued by governments, government agencies, supra-national and corporate issuers established, or conducting the predominant part of their business activity, in the economically emerging countries of Latin America, Asia, Europe, Africa and the Middle East. The composite's emphasis will be on investing in securities denominated in the currencies of the respective emerging countries.


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