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Tailored for investment professionals this site provides information on our products, strategies and services. Please remember capital is at risk and past performance is not a guide to the future.

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Strategy Focus:
Investec Emerging Markets Blended Debt

By: Peter Eerdmans, Co-Head of Emerging Market Fixed Income &
Grant Webster, Portfolio Manager
Blended EMD: an attractive entry point to play emerging markets

Increasingly investors are looking to access the widest emerging market debt (EMD) opportunity set. The blended EMD universe offers strong risk-adjusted return potential through exposure to sovereign (local and hard currency) debt, currencies and the corporate debt of blue chip emerging market companies. A blended approach also allows the manager the most flexibility in implementing their views.

From a yield perspective, blended EMD offers a materially higher yield than developed markets, but with shorter duration and the potential for foreign exchange (FX) return, given compelling emerging market currency valuations.

A blended approach is inherently diversified as it combines multiple potential return drivers from currencies, local currency bonds and hard currency bonds, with this diversification acting to lower volatility.


Compelling opportunity

Improving fundamentals

The fundamentals have turned a lot more positive for the asset class after several years of painful adjustment:

  • Emerging market current accounts have gone from deficit to surplus – in effect emerging markets are net lenders of capital.
  • We are now seeing positive growth trends across our universe and the emerging market growth differential over developed markets is widening once more

Figure 1: Balance of payment moving into surplus

Source: Haver, 31.12.16


Attractive valuations

At the same time, valuations are looking much more attractive:

  • Currency valuations appear compelling: nominal FX rates and real effective exchange rates remain low compared to history
  • Emerging market local yields offer an attractive pick-up in yield over developed markets – with the nominal and real yield differential near record highs.
  • Dollar spreads are arguably more fairly priced, but still have room to compress further on improving sovereign and corporate fundamentals.

Figure 2: Valuations - Real rates remain attractive

Source: Haver, IMF, J.P.Morgan, Bloomberg, IAM Calcs, March 2017


Constructive investor appetite

We have seen strong inflows year to date. Still relatively low levels of foreign participation should underpin this momentum and institutional investors remain structurally underweight.

Why Investec for blended EMD

Unique background

Having grown out of an emerging market we have vast experience of investing in the asset class; we pioneered investing in emerging market Local Currency and Corporate Debt.

We empower our staff in a collaborative environment, where their talent can flourish. As a result, we have had exceptionally low turnover. Indeed, the original members of our team are still with us almost 12 years later.

Best-in class econometric tools

We are fundamental investors and we pride ourselves on the experience we have in our markets. We have a suite of unrivalled proprietary models to assist in both our top-down and bottom-up analysis. More details can be found in our recent paper1.

Experience in managing multi-asset EMD

As an established emerging market debt manager, with more than two decades of experience – we have heavily researched the various approaches to managing multi-asset emerging market debt (see paper2).

Our approach balances the dual demands of our clients: firstly to appropriately position the fund across the various asset classes for the prevailing environment; and secondly to choose the best expression of our bottom-up country and corporate views.

To achieve this dual objective we run a dedicated top-down process which drives our asset allocation targets. We then ensure that we hit these targets using our bottom-up country and corporate investment ideas.

Figure 3: Annualised performance in USD (gross)

Past performance is not a reliable indicator of future results, losses may be made.
Source: Investec Asset Management, 31.03.17
Performance is gross of fees (returns will be reduced by management fees and other expenses incurred relative to its advisory account), income reinvested, in USD.
* Emerging Markets Blended Debt inception date: 01.01.11
** Comparison index: 50%JPM GBI-EM Glb/30%EMBI Glb/20%CEMBI Glb (pre Jun-13, 50/40/10; pre Apr-12, 50GBI/50EMBI).
For further information on indices please see the Important Information section.


Key attributes of our Emerging Markets Blended Debt Strategy

  • Our standard strategic allocation is 50% local, 30% dollar sovereign and 20% corporate. But we offer bespoke blended solutions, tailored to client risk requirements.
  • We combine a strong bottom-up process, within a rigorous top-down framework. We believe that the optimal approach to asset allocation is to use tailored, bottom-up, high conviction ideas.
  • Holistic investment approach: accessing country exposure through the most attractive entry points across FX, sovereign debt and corporate debt markets
  • Number of expected holdings: 25 – 40 positions across sovereign bonds and currencies, plus corporate bond holdings

1 Emerging Markets Blended Debt whitepaper
2 Emerging Markets Blended Debt thought paper


If you have any questions or would like more information on the topic please contact us.

Important Information
The information may discuss general market activity or industry trends and is not intended to be relied upon as a forecast, research or investment advice. The economic and market views presented herein reflect Investec Asset Management’s (‘Investec’) judgment as at the date shown and are subject to change without notice. The value of investments, and any income generated from them, can go down as well as up and will be affected by changes in interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets invested in.

There is no guarantee that views and opinions expressed will be correct, and Investec’s intentions to buy or sell particular securities in the future may change. The investment views, analysis and market opinions expressed may not reflect those of Investec as a whole, and different views may be expressed based on different investment objectives. Investec has prepared this communication based on internally developed data, public and third party sources. Although we believe the information obtained from public and third party sources to be reliable, we have not independently verified it, and we cannot guarantee its accuracy or completeness. Investec’s internal data may not be audited. Any decision to invest in securities or strategies described herein should be made after reviewing the prospectus and conducting such investigation as an investor deems necessary and consulting its own legal, accounting and tax advisors in order to make an independent determination of suitability and consequences of such an investment. This material does not purport to be a complete summary of all the risks associated with this Strategy. A description of risks associated with this Strategy can be found in the Prospectus or other disclosure document for the fund or Strategy. Copies of such documents are available free of charge upon request. Investec does not provide legal or tax advice. Prospective investors should consult their tax advisors before making tax-related investment decisions.

Investment Team
There is no assurance that the persons referenced herein will continue to be involved with investing for this Strategy or Fund, or that other persons not identified herein will become involved with investing assets for the Manager or assets of the Strategy or the Fund at any time without notice.

Investment Process
Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular Strategy. Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and implement its investment strategy or investment objective.

Performance Target
The target is based on Manager’s good faith estimate of the likelihood of the performance of the asset class under current market conditions. There can be no assurances that any Strategy or Fund will generate such returns, that any client or investor will achieve comparable results or that the manager will be able to implement its investment strategy. Actual performance of investments and the Fund or Strategy overall may be adversely affected by a variety of factors, beyond the manager’s control, such as, political and socio-economic events, adverse changes in the interest rate environment, changes to investment expenses, and a lack of suitable investment opportunities. Accordingly, Performance Targets may be expected to change over time and may differ from previous reports.

Specific Portfolio Names
References to particular investment or strategies are for illustrative purposes only. Unless stated otherwise, the specific companies listed or discussed are included as representative of the Strategy or Strategies. Such references are not a complete list and other positions, strategies, or vehicles may experience results which differ, perhaps materially, from those presented herein due to different investment objectives, guidelines or market conditions. The securities or investment products mentioned in this document may not have been registered in any jurisdiction. More information is available upon request.

Indices are shown for illustrative purposes only, are unmanaged and do not take into account market conditions or the costs associated with investing. Further, the manager’s strategy may deploy investment techniques and instruments not used to generate Index performance. For this reason, the performance of the manager and the Indices are not directly comparable.

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