PrintNews
PARTNER NEWS
Facts instead of opinions - emerging markets in focus
Date:
25. September 2024
The BKC Emerging Markets Renten (ISIN: DE000A2AQZJ8) is a sustainably managed emerging market bond fund that combines all key risk premiums of this asset class in its concept.
Its foundation includes both hard currencies – primarily EUR and USD – and local currencies. It has the flexibility to invest in government and quasi-government, as well as corporate bonds
across all rating categories. A key focus of the fund’s investment approach lies identifying mispricings and relative value opportunities, both within and between issuer curves.
In a recent interview, Marian Heller, Asset Manager at Bank für Kirche und Caritas eG (BKC), explains the fund’s unique features and approach.
Marian Heller: Emerging market bonds are available in euros, US dollars, and a variety of local currencies, each with its own interest rate and inflation dynamics. Since these different currencies offer completely different premiums, it makes sense for most investors to participate in all three segments to achieve optimal diversification. Currently, US dollar bonds and many other currencies offer higher interest rates than euro-denominated bonds, along with potential gains from currency appreciation. The fund’s euro allocation helps smooth out the volatility from currency fluctuations compared to pure foreign currency funds and offers opportunities for relative value trades and reserves for reallocations. Tactically, the fund can deviate from the neutral one-third mix to capitalise on short-term opportunities in specific currencies or credit premiums. This structure makes the fund particularly suitable for investors looking to outsource the complex task of optimal allocation between the different sub-segments within emerging market bonds.
What guides the decision to invest in specific currencies or interest rate regions?
At BKC, the investment approach always follows the principle of "facts over opinions": solid, measurable facts about the current situation take precedence over forecasts and opinions about future developments. The decision to overweight a particular currency region is based on a strictly rules-based, forecast-averse concept, which includes parameters such as:
- Relative attractiveness of real interest rates: The higher the interest rate after subtracting local inflation, the more capital flows into the currency region, often leading to currency appreciation.
- Fundamental currency valuation: The cheaper the currency based on long-term valuation metrics (e.g. purchasing power parity, real effective exchange rate), the higher the likelihood of medium-term currency appreciation.
- Strength of the trend: A positive trend increases confidence and the likelihood of further currency gains, especially if the fundamental valuation remains attractive.
- Economic fundamentals: It is crucial that the interest rate sufficiently compensates for country or currency risk. Positive trends in the current account balances, economic growth, and sustainable fiscal policies are risk-reducing factors.
- Role of the currency within the portfolio context: The stronger the currency's momentum, the more effective its diversification properties for the portfolio. A key principle for this fund is a balanced distribution between offensive and defensive components. Currently, the fund holds bonds from 17 currency regions in its portfolio.
Regarding credit premiums: How is the fund positioned in the current market environment?
At present, the BKC Emerging Markets Bonds Fund deliberately maintains an overweight in stronger credit ratings, as we find that the additional returns in more aggressive profiles are often not high enough. This, in turn, provides us with sufficient reserves to take advantage of opportunities if risk premiums in a risk-averse market environment rise again. However, in individual cases, there are always attractive relative value opportunities across all rating categories, which tend to be particularly pronounced in emerging market bonds. This approach allows the fund to achieve an attractive yield to maturity of 6.02%, with an average credit rating of BBB+ and a medium duration of 5.83 years*.
*Figures as of 30 August 2024.
A summary of your investor rights can be found at www.universal-investment.com/en/Corporate/Compliance/Investor-Rights. In addition, we would like to point out that Universal Investment may, in the case of funds for which it has made arrangements as management company for the distribution of fund units in other EU member states, decide to cancel these arrangements in accordance with Article 93a of Directive 2009/65/EC and Article 32a of Directive 2011/61/EU, i.e. in particular by making a blanket offer to repurchase or redeem all corresponding units held by investors in the relevant member state.
An investment in a Fund is a risky investment and investors in the Fund may suffer a loss in value up to an amount equivalent to a total loss of the entire capital invested in the Shares in the Fund. Accordingly, potential investors should have adequate and sufficient liquidity to economically bear a total loss of their investment in the Fund. When deciding to invest in the advertised fund, the investor should also take into account the sustainability aspects regarding the characteristics or objectives of the advertised fund as set out in the prospectus. Further information on the sustainability aspects of the BKC Emerging Markets Renten fund can be found in the web document, the sales prospectus and the pre-contractual product information. This can be found at: https://fondsfinder.universal-investment.com/en/DE/Funds/DE000A2AQZJ8/downloads.
