PRODUCT SPOTLIGHT
push its Global Emerging Markets Plus currency product right under the noses of investment managers. )LUVW WKH FXUUHQF\ HOHPHQW RI ERWK HTXLW\ DQG À[HG income growth is underestimated or even ignored by managers. Capturing the currency returns and avoiding the downside volatility is the secret to the new strategy. Over the past decade, almost half of the total unhedged USD-based return on the JPMorgan GBI Emerging Market Composite Index (JPM GBI EMI) has come from the currency return (see Figure X). ´7KH IDFW LV WKDW EHWZHHQ
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average annual return on unhedged emerging market bonds was attributable to currencies,” Fan reveals.
From the investors point of view capturing the generally upward movement of the emerging currencies but avoiding the duration risks (and potential credit risks) associated which emerging market debt should bring good returns.
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HPHUJLQJ PDUNHW FXUUHQFLHV DFURVV $VLD DERXW (0($ DERXW DQG /DWLQ $PHULFD DERXW ´:KDW LW·V GHVLJQHG WR GR LV WR UHÁHFW HDFK FRXQWU\·V relative contribution to global trade, subject to FXUUHQF\ FRQFHQWUDWLRQ ULVN DQG PLQLPXP OLTXLGLW\ UHTXLUHPHQWV µ VD\V )DQ 7KH FRXQWU\ DOORFDWLRQV DUH UHYLHZHG TXDUWHUO\ +RZHYHU RYHUODLG RQ WKLV EDVNHW LV WKH SURSULHWDU\ ULVN DYHUVLRQ ÀOWHU EDVHG RQ YRODWLOLW\ DQG OLTXLGLW\ LQGLFDWRUV ,W DOORZV Millennium to shift back to the domestic/base currency of the investor when signs of a precipitous fall in emerging market currencies are on the card, and re-enter the market when signs are positive.
“Emerging markets and their currencies have VXIIHUHG VLJQLÀFDQW IDOOV HVSHFLDOO\ ZKHQ WKH KRPH bias of developed market investors see them demand WKHLU FDSLWDO EDFN DV ZH VDZ LQ WKH 0H[LFDQ FULVLV
$VLDQ FULVLV 5XVVLDQ FULVLV DQG RI course in 2008,” observes Fan.
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DIWHU PDQDJHPHQW IHHV RQ HPHUJLQJ market currencies in 2008 while the same portfolio but without D ULVN ÀOWHU ZRXOG KDYH UHFRUGHG D loss.
7KH ÀJXUHV DUH compelling as is the story - access to the fastest growth markets while avoiding traditional fund drawdown UHTXLUHPHQWV VR RIWHQ IDFHG LQ WKH HTXLW\ and debt markets when those volatile events happen.
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Autumn 2011 | Currency Investor 73
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