Top bond managers lock horns on EMD strategy

ZURICH: Threadneedle’s David Oliphant and BlackRock’s Michael Krautzberger exchanged views during a lively roundtable event at the Fonds ’12 conference in Zurich.

The two Citywire-rated managers debated the role of emerging market debt, an asset class the managers agreed had become more attractive given the on-going difficulties in the eurozone and also long-running debt debates in the United States.

Oliphant, who co-manages Threadneedle’s Emerging Markets Corporate Bond fund, advocated a cautious approach saying the safest way to tap into emerging market debt was through in-direct plays, such as investing in Western companies with strong emerging world ties.

The Citywire A-rated manager said: ‘I would say the definition of emerging markets needs to be reconsidered. Does this include developed world countries now with strong exposure to the emerging markets?’

‘We would be interested in being overweight in companies in the US and the UK but only those that have exposure to the emerging markets. Because, then, not only do we get the growth story but we get better regulation as well.’

Eye on policy

AA-rated Euro Stars manager Krautzberger, who runs two European bond portfolios on behalf of BlackRock, said it was important to tread carefully in the developing world, particularly when monetary policy comes into play.

‘Most financial markets don’t have the extent of problems we have seen in the West. If you look at the emerging markets and the emerging Asian markets, in particular, their interest rates are relatively low but we have to be aware of how they are managing monetary policy,’ he said.

‘We have to consider that in some of these markets the currency policy is the major part of the concern and we have to manage the volatility that comes with it.’

Also speaking to Citywire at the event was Valentijn van Niewenhuijzen, head of fixed income strategy at ING. He said emerging market debt was rightfully receiving investor attention due to its strong risk/reward potential.

‘If there is an asset class or one type of approach you should look at in terms of risk/reward power, then high yield and emerging market debt are by far the most attractive,’ he said. ‘There are strong fundamentals, healthy balance sheets and GDP growth in the emerging markets.’

Over the past year, the Threadneedle Emerging Markets Corproate Bond fund has returned 0.96%, while its benchmark, the  BofA ML Global Emerging Markets Sovereigns TR rose 4.58%.

Meanwhile, Krautzbeger's best performing fund over the past three years is the BGF Euro Bond Fund X2 EUR, which returned 20.76%. Its benchmark, the  Citigroup EuroBIG TR, rose 12.56% over the same period.