29.12.2011

 Andris KotansAndris Kotans

Portfolio Manager

Citadele Asset Management

 

 

Investing in debt markets across the world, the WIOF Global Emerging Markets Bond Fund offers investors the chance to take advantage of emerging markets’ fundamental potential and the opportunities of investing in a complete range of sovereign and corporate bonds in hard and local currency.

 

OVERVIEW

The Fund offers exposure to hard currency sovereign and corporate debt as well as (primarily sovereign) local currency debt in the emerging markets of Europe, Asia, Africa and South America. Aimed at maximising total investment return, the Fund is ideal for investors interested in specialised capital markets but who are aware of the opportunities and risks of investing in such markets.

 

GLOBAL CHOICE

The global nature of the Fund allows investors to take advantage of the positive qualities of diverse emerging market regions to make the best of their investment. Each emerging market (EM) region in the Fund’s investment focus has strong fundamentals which underpin the opportunities for investment:

 

  • In Africa, South Africa is the continent’s stand-out economy with sustainable fiscal policies and improving domestic demand. It is projected to expand 3.6% in 2012.
  • The Asia Pacific region is economically resilient and domestic demand in what is the world’s most populated area should help its economies towards more sustainable growth. The region’s economy is projected to expand 8% in 2012.
  • CIS countries’ public finance positions have remained relatively strong compared to other regions while countries in Central and Eastern Europe are now in better shape than in 2008 – 2009.
  • Latin America’s economies are now running at levels above their pre-crisis highs and growth is projected at 4% in 2012. Strong domestic demand has sustained the growth of key Latin American economies which in turn has led to positive spill-overs in other markets throughout the region through trade.

 

RESILIENCE AND GROWTH

While the global financial crisis has dogged markets for the last three years, emerging markets have, in general, weathered it better than their developed counterparts and clearly demonstrated their intrinsic potential.  Emerging markets experienced smaller output losses compared to developed economies and are expected to demonstrate more robust growth in the coming years - GDP growth in EM countries is projected to be three times as fast as in advanced economies - even in what will almost certainly be an environment of lower growth. Meanwhile, their strong balance of payment positions and absence of large fiscal imbalances have made emerging markets more flexible and resilient in the face of systemic economic shocks.

 

Specifically, EM debt markets are also attractive. Markets are sizable and growing and their liquidity is strengthening. Total hard currency market capitalization (Barclays GEM index) is around USD690bn while local currency sovereign market capitalization (JP Morgan GBI-EM Div) is around USD530bn.

 

 

INVESTMENT PROCESS

The Fund manager’s investment process follows a mixture of top-down and bottom-up approaches. There is a top-down allocation between hard and local currency markets while a quantitative screening stage identifies potentially undervalued securities in the hard currency segment as well as relatively undervalued local currencies. A further stage of qualitative macro analysis then validates the previously-identified buy/sell signals before a series of internal guidelines are then applied to ensure optimal portfolio construction. This is maintained through a continual monitoring and portfolio review system.

 

OUTLOOK

Crucial to the Fund’s performance are, of course, the conditions on its key markets. Looking forward to the coming few months, while there is concern about worsening global economic growth, things look brighter for emerging markets. The relative outperformance of emerging markets is increasing and the growth and fiscal metrics of most emerging market economies continue to be much stronger than in the developed world, even taking into account the higher cyclicality of these economies. Turning to debt specifically, hard currency corporate debt is priced attractively, while hard currency sovereign debt is valued fairly. Further rating upgrades are also likely for some EM countries, while ratings developments in some developed countries have not been so good. For example, Standard & Poor’s raised Turkey’s rating outlook last year at the same time that Italy’s rating was downgraded. The manager also sees the underperformance of local currency debt in Q32011 as having been excessive. Taking these factors into account, the manager’s expected portfolio strategy for 1Q2012 involves a preference for corporate debt in the hard currency segment, shorter duration with higher average credit quality in hard currency debt and a neutral allocation towards EM local currency debt.

 

INVESTMENT MANAGER

The Fund is managed by one of the biggest asset managers in the Baltic region, Citadele Asset Management (Citadele AM). Citadele AM is the asset management arm of Citadele banka, one of the leading financial groups in the Baltic States. Citadele AM is the largest investment company in the Baltic region and via its subsidiaries also operates in Lithuania, Russia and Ukraine.

 

 

IMPORTANT NOTE:

This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 20th December 2002 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.