New EM debt strategy opened to Australian instos

27 May 2024
| By Rhea Nath |
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Principal Asset Management has made its Finisterre Emerging Markets Debt Total Return Strategy available to wholesale and institutional investors in Australia amid growing demand for exposure to emerging market debt (EMD).

Managed by Principal Finisterre, a boutique firm owned by Principal Asset Management, the strategy targets between 70 and 150 issuers and allocates across US dollar, sovereign or corporate credit, local currency bonds, and foreign exchange.

According to Principal Finisterre’s CIO Damien Buchet, there are a number of tailwinds for EMD, including resilient emerging market growth, prudent risk pricing, and easing US financial conditions.

“Right now, we are seeing a squeeze in terms of valuations which are positively impacting investors, allowing them to access the benefits of fixed income at potentially higher returns,” Buchet said.

​For Australian wholesale and retail investors, strategically incorporating EMD can offer specialised diversification opportunities and potential long-term returns by accessing the growth potential of developing nations.

“Australian wholesale investors are increasing their exposure to overseas assets due to diversification desires, improved access to investment vehicles and heightened returns which now, more than ever before, are creating a highly diversified income stream for global investors,” he said.

“Australian investors could benefit when investing in emerging markets as the Australian Dollar has a natural correlation with local currencies in regions such as Latin America and Africa and is less impacted by the United States Dollar, which can help bolster returns while mitigating risk.”

​With the Finisterre Emerging Markets Debt Total Return Strategy, which was first launched in 2013, the investment team uses “all of the levers available when allocating capital, including reviewing income opportunities, beta timing, alpha generation and the need for cash and defensive assets,” Buchet said.

“This allows us to respond quickly to market changes such as elections and monetary policy shifts,” he said.

​He noted the asset class has seen some volatile periods across the last two years.

“Any unexpected shock to risk assets would be expected to reverberate through EMD as we saw in volatile periods during 2023 and in particular 2022. However, our Total Return approach will be well geared to ride out these periods of volatility,” he said.

Principal Asset Management operates in over 80 markets, servicing more than 1,100 institutional clients.

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