Creditworthiness analysis at the core of our process

The EMD team aims to add alpha by identifying and successfully trading fundamental and/or ESG improvements of EM issuers before they are reflected in valuations. We aim to avoid credit deteriorations, especially if distressed issuers have not yet priced for credit events.

The EMD team conduct extensive due diligence for each issuer we are invested in summarized as proprietary credit ratings. These, next to our relative value frameworks largely determine how we construct our active strategies. Liquidity is a critical feature of the asset class, and our disciplined risk management approach is reflective of it. We continuously align portfolios with the level of conviction and take profits and step out of positions if targets are reached or rationale is exhausted.

Traditionally, EM sovereign creditworthiness analysis has incorporated social and governance indicators to gauge a credit’s convergence trajectory. Since 2019, we have rebalanced our sovereign sustainability framework towards a clear focus on environmental preservation and energy transition. We work closely with ESG analysts to arrive at an exhaustive credit rating, aware of both financial and material extra-financial factors.

Global macro risks are actively monitored and managed

The EMD team have developed an exhaustive assessment of global macro risks and themes that is formally updated monthly, or more often if material events, or data surprises challenge the asset class outlook. The top-down scorecard aims to aggregate and quantify views on global liquidity conditions, US Treasuries and Commodities, Chinese and EM fundamentals next to EMD sub-asset class specific fundamental, valuation and technical drivers. The ultimate result is a forward-looking asset class assessment that decision-makers aims to reflect across EMD strategies, by dialing up or down interest rate or credit risk exposure, corporate versus sovereign or local currency versus hard currency sovereign allocations.

Focused approach to EM sustainable investing

We deploy fundamental, ESG and liquidity screens to filter down the EM corporate investment universe. For our sustainable EM bond strategies, the investable universe explicitly excludes the bottom quartile of EM sovereign issuers, considering their trend development, and countries classified as Not Free as per the Freedom House’s assessment. This allows us to focus on a relevant opportunity set of fundamentally strong issuers with relatively lower sustainability challenges.

We also implement Candriam’s Controversial Activity screening policy across all EMD investments. 

Experienced investment team

The investment team is composed of hard currency, local currency, and corporate specialists, with clear product and research focus. We are a professional team with more than 10 years of average experience and have invested and learned through several market cycles. We believe in deploying predictable investment frameworks and uncover opportunities and are continuously improving these, to stay ahead of peers.

We have set up clear structures of strategy accountability and prefer to work as a team. We review investment rationale within co-management committees and have substantive discussions on the merits of our arguments. We have set up a predictable and transparent calendar of daily, weekly and monthly meetings to manage our analytical and decision-making workflow. Our decision-making process remains flexible as we can enact investment decisions swiftly.

We work closely with our colleagues from the global fixed income, emerging equity and ESG teams to produce exhaustive assessments of creditworthiness and of global factors that may impact our asset class. 

• Risk of loss of capital
• Equity risk
• Interest rate risk
• Credit risk
• High Yield risk
• Risk on Cocos

• Currency risk
• Liquidity risk
• Concentration risk
• Derivative risk
• Counterparty Risk

• Arbitrage risk
• Emerging market risk
• ESG investment risk