First State looks to EM bonds
First State Investments has established an emerging markets bond fund for its recently established emerging markets debt team headed by Helene Williamson.
Williamson, previously head of emerging market debt at F&C, joined First State last September. She has 30 years’ experience in emerging market debt, including 16 years at F&C.
When managing the new fund, Williamson will aim for income and growth by investing mainly in bonds issued or guaranteed by governments, financial institutions and companies in emerging markets.
She will invest in around 50 and 120 bonds, mainly US dollar-denominated sovereign and quasi-sovereign securities. When selecting bonds, Williamson and her team will look at political and economic factors that affect specific emerging market countries, as well as the broader macroeconomic picture.
First State believes now is a good time for investors to put money in emerging market debt and expects it to become popular with investors due to the diversification and returns it can provide. The firm believes that low government bond yields in the US and in the stronger Eurozone countries make emerging markets more attractive. The team prefers US denominated bonds as it feels that these provide the best risk and return trade-off, with local currency denominated securities seen as unsuitable given current market volatility.
Emerging markets may be seen as more attractive than developed markets due to lower debt and stronger economic growth, while dollar-denominated bonds are likely to be more stable and liquid than other currency denominations.
First State is well known as an experienced investor in emerging markets, which may encourage potential investors to invest despite the team being new.
However, emerging markets are not immune to events in the global economy, so ongoing issues such as the European sovereign debt crisis could have a negative impact.