1. DO YOU BELIEVE MULTI-ASSET PORTFOLIOS SHOULD HAVE A STRATEGIC ALLOCATION TO EMERGING MARKET CORPORATE DEBT IN 2026?
We have long recommended to our clients that they allocate strategically to emerging-market corporate debt (hard currency) because of the attractive returns and lower volatility this sub-asset class offers. As the chart below shows, a portfolio with 50% in EMD and 50% in equities reduces volatility while still generating returns that are only slightly lower than those of a 100% equity portfolio, but with a substantially lower volatility.
The significant expansion of the EMD asset class over the past decade has provided active managers with a much larger pool of opportunities to apply their research and asset management skills. There has been a 50% increase in the number of bonds available and a 34% increase in the number of issuers. This is especially true for our investment style, which is focused on quality corporates and fundamental analysis, even if they are in challenging jurisdictions. Such bonds tend to yield more than they would in developed markets, despite the relative strength of their business models, balance sheets and cash flows. Our emerging market strategy has an income yield of 7.5% and a yield-to-maturity of 8.6% for a very short duration of 2.5 years. Volatility over the last five years has been 5.8%, lower than a developed market investment-grade bond portfolio.
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