Four reasons to be optimistic about emerging market bonds
Emerging market bonds have had a pretty mixed year so far. Those that are issued in ‘hard currency’...
We’re having some renovation work done on our house at the moment. The building bit is all but complete and we’re now at the decorating stage. You’d think that would be the fun bit wouldn’t you? But there is so much choice and I’m finding the decision-making harder than I expected! Spotlights or pendant? Wallpaper or paint? Corner sofa or two two-seaters? I’ve wasted more time than I care to admit on Pinterest and the Dulux Visualizer app!
All first-world problems I know, but the excitement soon fades after the third trip to Ikea or Homebase, as my poor husband and children will attest to! So, in homage to my family and my very patient builders (who moved a partition wall… then moved it back again when I changed my mind), here are five funds that do the decision-making for you!
L&G UK Special Situations invests in all three – in differing amounts depending on where the opportunities can be found. It’s run by straight-talking Yorkshireman Richard Penny who uses his stock-picking skills to look for under-the-radar or undervalued companies, with the ability to grow more than market expectations or recover from recent setbacks. He has managed money through many different market scenarios and this experience helps him to look past the obvious and identify the real source of a company’s success.
Murray International Investment Trust, as the name suggests, offers investors an international portfolio of global equities, as well as some bonds. The manager, Bruce Stout from Aberdeen, can invest anywhere in the world and in any sectors. To give you an idea as to how diversified it is, the MISCI World Index* has around 59% allocated to US equities, 9% in Japan, 7% in the UK, 4% in France, 4% in Germany and 18% elsewhere. Murray International** has a much more active allocation and currently has just 14% in the US, with the manager favouring Asia (24%) and Latin America and emerging markets (18%). He also has a 12% weighting to the UK, 10% in Europe, 4% in Japan and 1% in Africa, with the rest in global fixed income.
Smith & Williamson Enterprise can make money by investing in companies it thinks will do well, in the hope that the stock price will rise over time. It can also make money when the price of stock falls by ‘shorting‘ it. It is called a long/short targeted absolute return fund. The managers use a wide range of trusted sources to identify investment themes and stock ideas. Their shorts aren’t just hedges to dampen volatility, but are genuine sources of alpha. This is reasonably rare and obviously a huge plus for this type of vehicle. Put into practise, this has seen the managers get some big calls right, including shorting the banks in 2008 and, more recently, profiting from the supermarkets’ fall from grace in 2014.
Premier Multi-Asset Growth & Income invests across a broad range of asset classes predominantly through holdings in other funds. The multi-asset team make decisions regarding the fund together, centred around a three-stage process: asset allocation (bonds, equities, property, commodities, etc); fund selection and active management. Actively monitoring and rebalancing the fund daily is a crucial part of the process. By doing this, the multi-asset team aim to improve potential returns and ensure that each holding is meeting its objectives.
Jupiter Strategic Bond is a flexible ‘go-anywhere’ fund which allows the manager considerable freedom to exploit opportunities across every type of bond throughout the world from UK to emerging market government debt through to corporate bonds and floating rate notes. The aim is to achieve a high income, but with the prospect for growth, although in practise the manager is prepared to sacrifice yield in order to preserve capital. He is quite cautious in his approach and emphasises limiting the downside in tough markets and he has demonstrated that he has an aptitude for reading the economic cycle. This, combined with some solid stock picking, has seen the fund perform well.
*Source: MSCI as at 31 August 2017
**Source: Aberdeen Asset Management as at 31 August 2017