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Investment views

Active versus passive in emerging market debt: the alpha opportunity

5 April 2019
Authors: Peter EerdmansHead of Fixed Income and Co-Head of EM Sovereign & FX, Werner Gey van PittiusCo-Head of Emerging Market Sovereign & FX, Roger MarkProduct Specialist, Emerging Market Fixed Income

Proponents of passive approaches typically claim that active managers do not deliver consistent alpha and that passive fees are significantly lower than active. This boils down to the question: can active managers in EMD add sufficient value to justify the higher fees they charge?

In our paper we examine the alpha – realised and potential – deriving from active management in EMD and look at the cost saving potential of passive approaches in this field. The analysis looks at the factors that are crucial for successfully harnessing alpha and investing sustainably in this unique and evolving investment universe.

We find that:

  1. Active EMD managers have delivered alpha in the long term
  2. The cost savings from investing passively are more limited in EMD
  3. Active approaches can be best placed for sustainable investing

As we enter the next chapter in emerging markets, we believe that the EMD universe is – and will remain – one of the richest environments for active managers to operate in thanks to the size and diversity of the opportunity set, the inefficiencies caused by non-profit maximising market participants and a lack of market information. All of this creates value adding opportunities for those with the relevant experience, expertise and toolkit.

Read the paper

 

All investments carry the risk of capital loss and past performance is not a reliable indicator of future results.

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.

Peter Eerdmans
Peter Eerdmans Head of Fixed Income and Co-Head of EM Sovereign & FX
Werner Gey van Pittius
Werner Gey van Pittius Co-Head of Emerging Market Sovereign & FX
Roger Mark
Roger Mark Product Specialist, Emerging Market Fixed Income

Additional Information:

This material is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contain statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual results may differ materially from those stated herein.

All rights reserved. Issued by Investec Asset Management, issued April 2019.

The content of this page is intended for investment professionals only and should not be relied upon by anyone else

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