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Fixed Income

How Diversified Is Your Emerging Markets Debt Strategy?

September 2018 - 5 min read

There may be significant benefits to using a blended approach to this asset class

A diverse opportunity set
Emerging markets debt (EMD) is a relatively young asset class, but one that has grown by leaps and bounds over the past 25 years or so. To a large degree, that growth has been fueled by investors’ growing awareness of EMD’s attractive risk-return profile and historically low correlation to more traditional asset classes.

Today, the global EMD market is valued at over $20 trillion.1 To put that number in perspective, consider that it’s within striking distance of the total market capitalization of the S&P 500 Index (approximately $24 trillion).2 By this or any other measure, EMD represents a very large investment universe. That much is clear.

What is less clear to many investors is just how diverse the opportunities across the EMD spectrum are. The asset class includes bonds rated from high yield to investment grade, issued in dozens of currencies by both governments and corporations. In addition, it encompasses three distinct sub-asset classes—EM local debt, EM sovereign hard currency and EM corporate debt—each with its own investment characteristics and drivers of performance.

 

  1. Source: IMF. As of September 2017.
  2. Source: Siblis Research. As of July 2018.
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