portfolio institutional: How are you accessing emerging market debt? Samy Muaddi: This year feels different in many ways, but we can still use the framework that we have been using for more than 30 years in emerging market debt. It is a framework anchored in applied history as it is informed by almost 200 years of sovereign issuance. Sovereign credit health is first and foremost what you need to look at. While we can be bottom-up on the corporate side, where there is a diversity of financial services, telecommunications and energy credits, when something goes wrong on the sovereign side corre- lations go to one in a country and you no longer get that diversifi- cation from corporate bonds. So, it is a mixture of bottom-up and top-down. Bottom-up analysis is what guides us, but when some- thing goes wrong in a country, as is happening in many cases in 2020, that top-down overlay becomes increasingly important.


8 November 2020 portfolio institutional roundtable: Emerging market debt


Krzysztof Lasocki: Emerging market debt is a risky asset class where it is expensive to generate higher than average risk- adjusted returns. We have always liked active management in this asset class, which allows for dynamic switching between local and hard debt, between corporates, high yield and invest- ment grade as well as the ability to go long and short, particular- ly on currencies.


It is an asset class we are cautious about this year, but there are opportunities. If not in investment grade, then in high yield and even in the distressed space. Chetan Ghosh: We have an 8% allocation to emerging market local currency debt. That is implemented through an active manager who has the flexibility to go into hard currency and corporate debt as well, but that is more on the margins than being a central part of the allocation. They can go up to 30% off-benchmark.


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