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Emerging Markets Blend Strategy

Fixed Income

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Why invest?

  • Bottom-up, value and contrarian focus.
  • Aims to maximize higher spread/yield for a slightly lower average rating than the benchmark through rich-cheap/lead-lag analysis.
  • Helps provide a solution to investors who desire to outsource their emerging market debt allocation.

"We aim to consistently deliver value to our clients by seeking to identify price discrepancies and invest with high conviction"

Luc D’hooge, Portfolio Manager, Analyst

Our investment process

We take a deeply contrarian approach to emerging market debt, aiming to take advantage of the dislocation in valuations that often present themselves in this inefficient and news-flow driven asset class. We implement this through a five-step process, which combines top-down strategic themes and bottom-up analysis with a focus on maximizing credit remuneration.

While at times our drawdowns can be higher than the broader market, we have certain typical traits we adhere to, depending on what type of phase the market is experiencing:

Typical behavior during consolidating markets
  • During significant widening of spreads, mispricings present themselves and we tend to reinforce our exposure as bonds are easier to buy.
  • We accept that reinforcing right at the bottom is almost impossible.
  • We may underperform in periods of a deep correction as we add risk, but when markets stabilize and rebound, the portfolio performance tends to accelerate.
Typical behavior during rallying markets
  • Invariably, mispricings continue to exist across regions, countries, curves, currencies, etc.
  • We tend to be overweight the market to help capture these mispricings
Typical behavior in overheating markets
  • When we sense that the “dash for trash” is exaggerated, and investors are gobbling up anything they can get their hands on, we tend to exit, reduce exposure to spread duration, increase average rating, etc.
  • We find at these times it is easier to sell bonds
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Investment opportunity – seeking the best of emerging markets bonds

The emerging market bonds universe comprises of three asset classes:

  • Hard-currency debt—government bonds denominated in a major currency (e.g. USD, EUR, CHF)
  • Local-currency debt—government bonds denominated in the issuer country’s own currency (e.g. ARS, BRL, TRY)
  • Corporate bonds denominated in either hard- or local-currency

Historically, all three asset classes have performed differently depending on the prevailing economic environment, which is why the right blend of allocation is so important. We actively allocate between the three asset classes with the aim of obtaining an optimal balance in any market environment.

The Emerging Markets Blend strategy can provide a solution to investors who desire to outsource their emerging market debt allocation, offering you a portfolio of what we believe are the best ideas. Within one tried-and-tested strategy, you can access the full universe of emerging market bonds, managed by an experienced team of experts.

Investment philosophy – inefficiencies can lead to opportunities

Segmented markets and risk aversion can offer high return, low volatility and decorrelated opportunities. Our investment philosophy rests on two inefficiencies and sources of performance

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Investment team

The strategy is managed by the Emerging Markets Bonds team, comprising of experienced portfolio managers with strong track records. The team also has at its disposal the full capabilities within the Zurich based Fixed Income Boutique.

We believe this optimal team structure enables proactive early idea generation and implementation.

 

Emerging Markets Blend Composite Returns

 
 

Source: Vontobel. The composite inception date is September 1, 2015. The composite‘s gross rates of return are presented before the deduction of investment management fees, other investment-related fees, and after the deduction of foreign withholding taxes, brokerage commissions and transaction costs. An investor’s actual return will be reduced by investment advisory fees. The composite‘s net rates of return are presented after the deduction of investment management fees, brokerage commissions, transaction costs, other investment-related fees and foreign withholding taxes. Results portrayed reflect the reinvestment of dividends and other earnings. The comparison to an index is provided for informational purposes only and should not be used as the basis for making an investment. There may be significant differences between the composite and the index, including but not limited to the risk profile, liquidity, volatility and asset composition.  The J.P. Morgan Emerging Markets Blended (JEMB) Equal Weighted TR Index is an aggregate EM fixed income benchmark that blends US dollar and local currency denominated sovereign, quasi-sovereign and corporate bonds in equal proportion (1/3 GBI-EM GD, 1/3 EMBIGD, 1/3 CEMBIBD). The weights of the underlying subindices are fixed and rebalanced to these fixed weights at every month-end rebalance. The index is calculated daily on a total return basis with an immediately re-investment of cash flows. Past performance not an indication of future results. Returns more than one year are annualized. Please refer to the Disclaimer tab for additional explanations regarding composite disclosure and other Important Information.

Emerging Markets Blend

Composite description

The composite includes all share classes of pooled funds and all segregated accounts with the investment strategy Emerging Markets Blend with USD as base currency. This investment strategy invests in the fixed-income asset class by purchasing sovereign, quasi sovereign and corporate bonds with issuers domiciled in, having their business activity in or exposed to emerging markets. Further, the investment strategy takes on emerging markets currency risk. The universe is that of the J.P. Morgan Emerging Markets Blended (JEMB) Equal Weighted Index as well as off-benchmark countries. Non-benchmark bonds are typically hard or local currency sovereign, quasi sovereign, corporate bonds or bonds from non-benchmark emerging countries. Non-USD hard-currency risk is hedged back into USD. Emerging local currency exposure may or may not be hedged. Standalone emerging market currency positions, long or short, can be taken independently from the underlying hard and local currency securities. The strategy aims to outperform the J.P. Morgan Emerging Markets Blended (JEMB) Equal Weighted Index by 1.75% per annum, gross of fees over a three year rolling period.

Benchmark description

J.P. Morgan Emerging Markets Blended (JEMB) Equal Weighted Total Return (from inception to 28 February 2019: 20% J.P. Morgan Corporate Emerging Market Bond Index (CEMBI) Broad Diversified Total Return, 40% J.P. Morgan GBI EM Global Diversified Composite Total Return, 40% J.P. Morgan Emerging Market Bond Index (EMBI) Global Diversified Total Return)

Claim of compliance

Vontobel Asset Management claims compliance with the Global Investment Performance Standards (GIPS®).

Firm definition

Vontobel Asset Management is a multi-boutique asset management firm established in 1988 and regulated by the Swiss Financial Market Supervisory Authority FINMA. For GIPS Compliance purposes, Vontobel Asset Management is defined to include assets managed in the Fixed Income, the Conviction Equities, the Quantitative Investments and the Multi Asset boutiques across all global offices and includes both the management of institutional segregated accounts and pooled funds.

For the United States, advisory and investment management services are offered by Vontobel Asset Management, Inc. (“VAMUS”). VAMUS is an investment advisory firm registered with the Securities and Exchange Commission, under the Investment Advisers Act of 1940, as amended, and a subsidiary of Vontobel Holding AG, Zurich, Switzerland. Note: Regarding investment management, all accounts in the composite are managed by the same investment team. However, there are accounts in the composite not offered by VAMUS but by other Vontobel affiliated entities.

List of composites and how to obtain a GIPS Report

To receive additional information regarding Vontobel Asset Management, including a GIPS Composite Report for the strategy presented in this advertisement and a list of all composite descriptions managed by the firm, contact the GIPS Compliance Office at gips@vontobel.com or write Vontobel Asset Management AG, GIPS Compliance Office (G27 611), Gotthardstrasse 43, 8022 Zurich, Switzerland.

Fee schedule

The current annual investment management fees charged for segregated accounts are: 0.625% on the first $100 million, 0.55% over $100 million. The current investment management fee schedule for the Vontobel Fund - Emerging Markets Blend, which is included in the Emerging Markets Blend Composite, is 0.625% on all assets for institutional share classes. The latest total expense ratio (TER) for the Vontobel Fund - Emerging Markets Blend is 0.84% for institutional share classes.

Investment management fees for advisory services offered by VAMUS may differ from what’s noted above. Fees charged are negotiable and further described in Part 2 of Form ADV for VAMUS.

Past performance and investment risk

Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. Value and income received are not guaranteed and one may get back less than originally invested.

CFA Institute

GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.

Important Information

This document has been prepared and approved by a company of the Vontobel Group (“Vontobel”) for informational purposes only and does not constitute an offer, solicitation or recommendation to buy or sell any investment securities or strategies discussed, to effect any transactions or to conclude any legal act of any kind whatsoever. This information should not be considered investment advice or any other kind of advice on legal, tax, financial or other advice or a recommendation to purchase, hold or sell any investment. No representation is given that the securities, products, or services discussed herein are suitable for any particular investor.

The index comparisons are provided for informational purposes only and should not be used as the basis for making an investment decision. Further, the performance of the composite and the Index may not be comparable. There are significant differences between the composite and the indices referenced, including, but not limited to, risk profile, liquidity, volatility and asset composition. Please note that an investor cannot invest directly in an index.

Any projections contained above are based on a variety of estimates and assumptions. There can be no assurance that the assumptions made in connection with the projections will prove accurate, and actual results may differ materially. The inclusion of projections should not be regarded as an indication that Vontobel considers the projections to be a reliable prediction of future events and projections should not be relied upon as such.

There can be no assurance that investment objectives will be achieved. Clients must be prepared to bear risk of a total loss of their investment.

Past performance is not a reliable indicator of current or future performance. The return may go down as well as up, e.g. due to changes in rates of exchange between currencies. The value of invested monies can increase or decrease and there is no guarantee that all or part of your invested capital can be redeemed.

Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan's prior written approval. Copyright 2021, J.P. Morgan Chase & Co. All rights reserved.

Please refer to Form ADV Part 2A for additional information on the strategy which includes Vontobel’s investment advisory fees.

Vontobel Asset Management, Inc. (Vontobel) is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended, in the USA. Registration as an Investment Advisor with the U.S. Securities and Exchange Commission does not imply a certain level of skill or expertise. Advisory services for strategy discussed herein are offered through a Participating Affiliate structure between Vontobel Asset Management, Inc., Vontobel Asset Management AG, and Vontobel Asset Management Asia Pacific Ltd.

Although Vontobel believes that the information provided in this document is based on reliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completeness of the information contained in this document. Except as permitted under applicable copyright laws, none of this information may be reproduced, adapted, uploaded to a third party, linked to, framed, performed in public, distributed or transmitted in any form by any process without the specific written consent of Vontobel. To the maximum extent permitted by law, Vontobel will not be liable in any way for any loss or damage suffered by you through use or access to this information, or Vontobel’s failure to provide this information. Our liability for negligence, breach of contract or contravention of any law as a result of our failure to provide this information or any part of it, or for any problems with this information, which cannot be lawfully excluded, is limited, at our option and to the maximum extent permitted by law, to resupplying this information or any part of it to you, or to paying for the resupply of this information or any part of it to you. Neither this document nor any copy of it may be distributed in any jurisdiction where its distribution may be restricted by law. Persons who receive this document should make themselves aware of and adhere to any such restrictions.

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