Why you needed emerging market bonds
Emerging market bonds were the best performers in the global fixed interest bond sector, as they saw a strong finish to 2019, aided by strong performance early in the year but also last month.
The ACS Fixed Interest – Global Bond sector returned 8.32% from 1 November, 2018, to 31 October, 2019, according to FE Analytics.
The top five performers were Colchester - Emerging Markets Bond I (19.42%), Mercer - Emerging Markets Debt (17.72%), CFS - High Quality US High Yield A (14.05%), CFS - US Select High Yield A (13.16%) and Schroder - Global Corporate Bond Inst (13.09%).
Colchester’s Emerging Markets Bond fund’s top holdings were South Africa (6.4% weighting; 10.5% interest; 21/12/26 maturity date), Colombia (5.07%; 7%; 04/05/22), Brazil (4.47%; 10%; 01/01/21), Mexico (4.05%; 10%; 05/12/24) and Indonesia (3.77%; 8.25%; 15/05/29).
The weightings by credit rating were BBB (52.74%), A (32.78%) and BB (14.48%).
In its October factsheet, Colchester noted emerging market currencies had a positive performance, particularly during that month, as the US dollar weakened.
“Emerging market (EM) currencies performed well in October as risk appetite returned to markets amid signs of an easing in global trade tensions,” Colchester said.
“The JPM GBI-EM Global Diversified Index returned -0.2% in US dollar hedged terms over the month as yields remained broadly stable.”
“The EM currency strength against a backdrop of US dollar weakness boosted the unhedged index return to a healthy 2.9% however.”
Another unique performer was Schroder’s Global Corporate Bond fund who’s weightings by credit rating were BBB (44.4%), A (38.8%), AA (10.9%) and AAA (5.8%).
Their holdings by region were the US (47.8%), UK (17.1%), France (7.2%), Germany (5.1%) and Netherlands (4.3%).
Schroder was weighted in industrial (50.7%), financial institutions (32.2%), utility (6.8%), treasuries (6.1%), agencies (1.8%) and derivatives (0.9%).
Their top five holdings were in two United Kingdom Gilt Bonds (both 1.5% interest; with maturity dates of 22/01/21 and 22/07/26), United States Treasury Note/Bond (2.63%; 15/02/29), American biotech Thermo Fisher Scientific (3.2%; 15/08/27) and Italian multinational oil and gas company Eni (4.75%; 12/09/28).
Chart 1: Top five performing funds in the ACS Fixed Interest – Global Bond sector.
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