Presenting the BlueBay EM Aggregate Bond Fund
FOR PROFESSIONAL INVESTORS ONLY
Combining emerging market sovereign and corporate debt into one portfolio, the BlueBay Emerging Market Aggregate Bond Fund was launched in July 2015.
In this Fund in Five, we talk to Polina Kurdyavko, head of emerging markets and senior portfolio manager at BlueBay, to look at the fund from five angles and why investors should be considering emerging market debt (EMD) in their portfolios.
IMPORTANT INFORMATION
Polina Kurdyavko, head of emerging markets and senior portfolio manager at BlueBay, says the BlueBay Emerging Market Aggregate Bond Fund combines the best ideas across emerging market corporate and sovereign issuers.
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In both an inflationary and uncertain environment, she adds, allocating to EMD allows investors to gain almost double-digit yield, but at the same time not take big bets on growth and the pace of the recovery in both emerging markets and the broader world.
“We have a $4trn universe across both corporate and sovereign debt, therefore finding best ideas across the two provides investors with maximum diversification and flexibility when it comes to the ability to generate alpha,” she says.
The portfolio consists purely of hard currency (predominantly dollar-denominated) assets trading at a spread over US treasuries.
Adopting a high conviction approach, the BlueBay Emerging Market Aggregate Bond Fund invests in between 120-150 issuers across the EM sovereign and EM corporate universe.
Kurdyavko says there are two main pillars to the fund’s investment process. The first is related to its research process and the second revolves around portfolio construction.
Kurdyavko adds that investors often don’t deliver alpha in the asset class not because they have the wrong view, but because they have had the wrong position sizing or wrong timing. As a result, she says at BlueBay at least 50% of the time is spent on portfolio construction so as to reduce drawdowns in the portfolio.
“When it comes to research we feel that operating as one team and looking at best ideas holistically across corporate and sovereign debt puts us in a better position to combine the policy link between the two and truly identify the best opportunities in a particular country,” she says.
According to Kurdyavko, there are three main factors which differentiate the fund from its peer group. Firstly, the focus on having an absolute return and capital preservation mindset, secondly its research process and being agnostic to where in the market it finds its best ideas, and thirdly its portfolio construction and risk management process.
“Emerging market debt is an asset class which is generally under-researched given its early stages of development, particularly when it comes to corporate credit,” says Kurdyavko. “As a result we focus a lot on finding dislocation in the pricing of corporate and sovereign credit and taking advantage of this to generate performance.”
The fund also integrates ESG risks in emerging markets into its bottom-up analysis, although Kurdyavko says the approach at BlueBay isn’t all about avoidance. “We feel the right approach is to identify the risks and engage with those countries and companies in order to identify areas for improvement.” she says.
Managing the fund alongside Kurdyavko are Jana Velebova-Harvey and Anthony Kettle, who combined as a team have an average investment industry experience of 17 years.
Kurdyavko, who joined BlueBay from UBS in 2005, started her career in emerging markets just after the Russian financial crisis in 1998 and since then has gained expertise across a broad range of emerging market financial assets.
Alongside the three managers, the fund has access to BlueBay’s 32-strong EMD team, which in total runs about $10bn.
“We have a team approach when it comes to running this fund,” she says. “All of us have core and speciality responsibilities. I have a soft spot for credit, so I spend a lot of time looking at sovereign and corporate credit, Jana has an additional background in risk management and sizing the positions and Anthony is focused a lot more on the relative value and technicals of the market, in addition to his expertise in the fundamentals of emerging markets.”
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While the BlueBay Emerging Market Aggregate Bond fund was launched in July 2015, the group’s heritage in the asset class dates back over 20 years when BlueBay Asset Management was first founded.
Since inception to 31 August, 2022, gross of fees and in dollar terms, the fund has returned 3.49%, versus a 2.12% gain from its benchmark (50% JP Morgan EMBI Global Diversified/50% JP Morgan CEMBI Diversified).
“We have reached our alpha target on an annualised basis since inception and the fund has performed well in various market conditions, including the adverse conditions we have experienced in the last few years,” says Kurdyavko.
This information is for investment professionals only and should not be relied upon by private investors. This document is provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM or its affiliated entities listed herein. This document does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for providing such advice. This document is not available for distribution to investors in jurisdictions where such distribution would be prohibited. RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc., RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia) Limited, and BlueBay Asset Management LLP, which are separate, but affiliated subsidiaries of RBC. In Canada, this document is provided by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. In the United States, this document is provided by RBC Global Asset Management (U.S.) Inc., a federally registered investment adviser. In Europe this document is provided by RBC Global Asset Management (UK) Limited, which is authorised and regulated by the UK Financial Conduct Authority. In Asia, this document is provided by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong. Additional information about RBC GAM, Prospectus and Key Investor Information may be found at www.rbcgam.com. This document has not been reviewed by, and is not registered with any securities or other regulatory authority, and may, where appropriate and permissible, be distributed by the above-listed entities in their respective jurisdictions. Any investment and economic outlook information contained in this document has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions. Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such opinions are for informational purposes only and are not intended to be investment or financial advice. RBC GAM does not undertake any obligation or responsibility to update such opinions. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of this information. Past performance is not indicative of future results. With all investments there is a risk of loss of all or a portion of the amount invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter time periods. It is not possible to invest directly in an index. Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc., 2022
