Investing in emerging markets government bonds
The ‘Econopolis Emerging Government Bonds’ fund is an investment fund (SICAV or ‘open-ended mutual investment fund’ under Luxembourg law), set up solely for the purpose of investing in government bonds in emerging economies (countries with growing economies or ‘emerging markets’).
Nowadays, it is hard to refer to emerging economies in general terms without having to be selective. This is particularly the case because of the considerable differences that set these emerging countries apart. This is why Econopolis is launching an actively managed fund, which makes clear choices for the countries in which it is willing to invest. To put emerging markets into perspective: emerging countries make up over half of the world population, own over 40% of the foreign currency reserves and produce over a third of the global economy’s output.
Why invest in EM government bonds?
The market for government bonds issued by emerging countries has risen sharply in recent years, to the point where they now make up a substantial portion of the global investment universe.
Positive long-term prospects
In spite of recent negative rumblings in the press, the long-term prospects for emerging economies remain decisively positive. However one needs to be selective since not all economies will perform equally strong.
Solid creditworthiness offering positive returns
With Europe and Japan having adopted a 0% (or even negative) interest rate policy, and interest rates in the United States now bottoming out as well, investing your money in government bonds in emerging markets is an appealing proposition. The average credit ratings for emerging economies are good, and increasingly less different from those seen in the West. In addition, the returns on investments are also significantly higher in these countries, which compensates for the increased (currency) risk.
Why the Emerging Government Bonds Fund?
The aim of the fund is to invest in a diversified portfolio, partially invested in bonds quoted in local currencies and partially in bonds quoted in so-called ‘hard currencies’ (USD and EUR). In addition, the fund uses a reference index in which no single country is weighted more than 10% (the portfolio can have more than 10% allocation to a country). The portfolio is therefore highly diversified from the start, while simultaneously posing a diminished country risk. Obviously we actively manage the portfolio and are not in any way compelled to include in the portfolio all the positions listed in the reference index. Neither are we forced to invest in countries which we believe present unduly great risks, or where the expected returns are too small. We believe that the combination of broad-based diversification, along with a clear investment vision, will produce good investment results, in which risk control plays a very significant role.
Disciplined decision-making process & duly considered investment choices
Among other elements, our investment process demands that comprehensive financial analysis is carried out, which requires us to apply the necessary discipline when it comes to valuations. We do not jump on the bandwagon of the latest market trends, and we also stay well clear of investments that fail to meet our valuation requirements. Moreover, our medium-term investment horizon makes sure that the number of transactions in the fund remains relatively low.
In addition, we will be making clear investment choices, which will see some countries being assigned little or no weight in the fund, and others will be given a more prominent level of allocation. All of which is based on our in-house analyses, while simultaneously adopting a range of perspectives (macroeconomic developments, valuations, governance, etc.).
The broad range of choices and the selective constitution of the portfolio create a robust structure that will withstand potential storms, while continuing to yield a rewarding return on your investment.
Specialist team and local expertise
The asset managers make up a specialist team with a longstanding and broad-based track record. Interaction and joint consultation are central to the way the team operates. We take the long view and are committed to delivering steady growth of the net asset value without losing sight of the risk of markets falling.
Based at our Econopolis Singapore office, our analysts and fund managers are in direct contact with the Asian markets. First-hand information is crucial for separating the wheat from the chaff in these markets. Keeping our finger on the pulse enables us to react quickly to opportunities that we are able to identify, rather than remaining dependent on information supplied by third parties.
Blindly relying on indexes does not form part of our investment philosophy. We do not invest in countries just because they are included in an index. We invest solely on the strength of our own beliefs.
Characteristics and fees
- Name: Econopolis Emerging Government Bonds
- Type: Luxembourg SICAV
- Capitalisation (ISIN: LU1330373066) and distribution (ISIN: LU1330375277)
- Expected launch date: April 2016
- Management fee I-class: 0.60%
- No entry fees, no exit fees, no performance fees
￼I-class reserved for institutional investors
- The fund invests over the medium to long-term in bonds from emerging countries, which we monitor locally through our Singapore office.
- An actively managed portfolio built around diversification and risk control.
- The fund’s composition is based on strong convictions and sound insights, acquired from intensive research.
- The focus is on specific countries, carefully selected from an independent point of view.
- No unclear or complex performance-related fees are charged.