The fund is managed by Standish Mellon Asset Management, a US-based subsidiary of the Mellon Group. Standish Mellon is a specialist fixed income manager with more than $239bn in assets under management. It was formed in 2001 after Mellon acquired Boston-based Standish, Ayer & Wood, which was founded in 1933.
The new fund aims to provide growth by investing globally in emerging market government and corporate debt typically in US dollar investments issue by emerging market governments and companies.
Mellon Global Investments regards this fund as a diversifier for the fixed-income portfolios of sophisticated investors. Its research showed the fund’s benchmark index – the JPMorgan EMBIG index – provides double the returns of emerging markets equities on an annual basis with a third of the volatility.
According to Mellon, there have been improvements in emerging market debt over the last five years in terms of credit quality, liquidity, transparency and volatility which makes the asset class attractive. It says the long-term creditworthiness of government debt depends on a country’s ability to generate sustainable economic growth. In turn, economic growth and creditworthiness depends on the policies a country implements. These factors will be considered along with the country-specific risk to determine asset allocation.
Once the asset allocation is decided, Standish Mellon will assess the trade off between the price and risk of the securities in relation to the credit quality of government and corporate issuers.
This fund may be attractive to Mellon’s target investor base given the fact that around 50 per cent of emerging market debt is now investment grade. However, the level of yield available in this market may not be considered high enough to compensate investors for the risk of default.