Performance of funds vs sector over 10-yrs
| Fund/sector |
10-yr returns (%) |
| IMA Global Bonds |
65.93 |
| Schroder ISF Emerging Markets Debt Absolute Return |
83.98 |
| M&G Emerging Markets Bond |
109.35 |
| Threadneedle Emerging Market Bond |
126.2 |
| Invesco Emerging Markets Bond |
149.69 |
Source: FE Analytics
Vehicles including M&G Emerging Markets Bond and Threadneedle Emerging Market Bond have trounced the IMA Global Bond sector – albeit it at a higher risk.
Performance of funds vs sector over 10-yrs
Source: FE Analytics
Over a 10-year period, Invesco’s Emerging Markets Bond fund has returned 147.7 per cent, compared with 65.9 per cent from the average fund in the IMA Global Bonds sector. The fund has a volatility of 12.4 per cent for the period, while the sector scores 6.5 per cent.
That is not as risky as equities, though; the Ireland-domiciled $388.8m vehicle has an FE Risk Score of 48, making it far less volatile than the FTSE 100. This is significant as one of the most common reasons why investors shun emerging market debt is because they associate it with high risk.
The fund's total expense ratio (TER) is slightly lower than average at 1.2 per cent, and it pays out a 6.2 per cent yield.
Manager Claudia Calich includes the debt of the Brazilian, Columbian and Venezuelan governments in her top-10 holdings.
Investec Emerging Markets Local Currency is another strong performer. While it doesn’t have as long a track record as the Invesco offering, it beat it over the past five years, returning 94.7 per cent compared with 64 per cent at 0.1 per cent more risk. Its TER is slightly higher, however, at 1.62 per cent.
The fund has a Five Crown rating from FE and a risk score of 56. With £1.8bn under management, the fund is well established. Manager Peter Eerdmans counts Turkish and South African debt, which have yields of 4.2 and 7.3 per cent respectively, among his top-10 holdings.
Peripheral Europe also makes up a large bulk of the fund’s holdings, at 35.1 per cent.
The funds mentioned above haven’t fared as well in the shorter term, though; they have largely lost money, while the IMA Global Bond sector made 2.2 per cent.
A similar pattern is true of the three emerging market debt absolute return funds. The Schroder ISF Asian Bond Absolute Return fund and Schroder ISF Emerging Markets Debt Absolute Return fund have beaten the IMA Absolute Return sector over three and five years, and provided strong double-digit returns over a decade. The IMA Absolute Return sector doesn’t have a 10-year track record.
Performance of funds vs sector over 5-yrs
Source: FE Analytics
A recent poll by FE Trustnet found that more than half of investors either invest in emerging market bonds or are considering it. When asked whether they put money in the debt of developing regions, 31 per cent of 575 respondents said yes, while 25 per cent said they were thinking about it.