The quick view
- Total return investment approaches can mean a variety of things. For us it’s about catering to investors who want all the return of the local currency debt market but less of the risk.
- Using the freedom a total approach gives us, we explore the entire investment universe, favouring lower volatility markets and economies with improving long-term structural dynamics.
- Launched almost six years ago, the strategy has delivered upside capture with less volatility than the market, while also posting top-decile performance.*
We are firm believers in the long-term return and diversification potential of emerging market (EM) local currency debt and the important role the asset class can play in investors’ overall portfolios. And we believe that an active approach is the best way to access this diverse universe, as we discussed in our paper Active versus Passive in EMD: the alpha opportunity.
We also recognise that the shortcomings of the main benchmarks in EM local currency debt – including concentration risk, excessive volatility and narrow inclusion criteria – create opportunities for managers willing to think beyond these limitations and take advantage of the opportunities the investment universe has to offer.
Now approaching its sixth birthday, our total return strategy provides a solution for investors wishing to access the EM local currency debt opportunity. It is particularly relevant for those who:
- Believe that an unconstrained approach to investing, combined with the inefficiencies of benchmark construction, can provide opportunities in the pursuit of superior returns.
- Are sensitive to drawdowns, preferring to target higher alpha in down markets and understanding this may mean forgoing some potential upside capture when markets rise sharply.
In our paper we reflect back on nearly six years of investing successfully with a total return approach.
Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.
The value of investments, and any income generated from them, can fall as well as rise.
*eVestment Global Emerging Mkts Fixed Income - Local Currency universe, January 2014 to September 2019: Investec Emerging Market Local Currency Total Return Debt: 6th percentile. Please see paper for full details.