Last Word
Perspective
ARTICLE
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Fund Manager
VIDEO
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Square Mile
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Fund Buyer
REACTIONS
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strategy directly from the fund manager himself.
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research and market views together with an explanation of the
The Mirabaud - Global Emerging Market Bond Fund aims to deliver mid to high single digit dollar returns over three years targeting value at risk of 3-6% per annum, an impressive target by any standards.
Axis analyses the fund from four perspectives to bring you insight,
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Review By Nicola Brittain
This fund’s maturity waterfall targets duration and liquidity risk inherent in hard currency, and its high active management helps manager Daniel Moreno reduce volatility risk in local currency sovereign. It can help investors find good returns while managing exposure to key EM debt risks.
Scroll down to read more...
COMPANY_ Last Word
LOCATION_ London
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“With just 50% exposure to the benchmark, this fund’s high active management and ongoing repositioning helps it maximise opportunities in the rich EM debt asset class”
YEARS IN INDUSTRY_ 17
at Last Word
JOB TITLE_ Investment Writer
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Moreno’s fund allocates dynamically to achieve its objectives
COMPANY_ Square Mile Investment
To view Square Mile Investment Consulting and Research Ltd's disclosure on their involvement on this site, please click here.
JOB TITLE_ Head of Research
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“The fund aims to provide total returns for investors, reflected in the performance objective of 5-7% per annum, net of fees, over rolling three-year periods, while controlling volatility ”
Moreno has been managing the EMD fund for around 18 months but the strategy has been running for five years and he has more than 20 years’ experience in this asset class. He also draws on the expertise of Mirabaud’s wider fixed-income team, including head of fixed income Andrew Lake.
Scroll down to read more...
YEARS IN INDUSTRY_ 16
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VICTORIA HASLER
Last Word
Perspective
Good returns are never easy to come by and wariness around emerging market debt (EMD) is not unjustified. That said, the EMD yield profile is one of the highest it’s been in recent years, thereby affording excellent opportunities. Fund managers Daniel Moreno and Puneet Singh aim to deliver mid to high single digit dollar returns per annum over a three-year cycle with a target value at risk of 3-6%.
One of the Mirabaud - Global Emerging Market Bond Fund’s most distinctive features is described by the managers as a ‘maturity waterfall’. This staggered maturity profile means almost 50% of the portfolio will mature on different months over the next three years. This helps on four fronts: it reduces liquidity risk by providing natural cashflow, allowing the managers to take advantage of opportunities as they arise, it reduces transaction costs as well as duration, meaning lower exposure to core interest rates, and it also provides downside protection in case of major market sell-offs.
The fund is also extremely flexible. While many traditional EMD funds focus on one element of the universe, such as sovereign or corporate debt, Mirabaud’s thoroughly blended approach means it invests across hard and local currency, sovereign and corporate bonds, with current ratios of hard and local at 60% and 40%, respectively, and ratios of sovereign and corporate at 70% and 30%, respectively. Twenty per cent of the fund is invested in frontier markets.
The Mirabaud Fixed Income Investment Process looks at broad macro trends such as key market drivers, business cycles and capital flows at a top level. Various proprietary tools are then used to feed into the fundamentals, technical and valuations (FTV) framework and conduct a detailed assessment of macroeconomic fundamentals, such as monetary and financial metrics, as well as technical factors, including fund flows and spread volatility. The fund also looks at spreads, breakevens, currency valuations and credit versus equity performance.
Investor fears around lack of liquidity/higher duration and volatility across this asset class are not unfounded, but risk management is centre stage for Moreno and Singh, via the maturity waterfall, ongoing repositioning and fundamental analysis of credit risk. Over three years to September 2018, the fund has outperformed the benchmark, with considerable relative gains made by limiting losses during falls in the market.
In the past 20 years, the universe has grown 16-fold, from $1.5trn to more than $25trn. Despite this growth, total EM fixed income measures only 77% of GDP. In developed markets the ratio stands at more than 180% of GDP. Considering the higher real GDP growth rate in EM versus DM, it’s clear that this innovative fund is tapping a market with some way left to grow.
Innovative fund puts risk centre stage
AUTHOR_ NICOLA BRITTAIN
The team is also agnostic about asset type, issuer category or currency of denomination. When mapped against other non-blended funds, this vehicle benefits from lower duration and higher yield to maturity – at 3.5 years and 10%, respectively, a considerably more attractive profile than that offered by global EMD indices (at 6.2% over 6.6 years).
The managers can also buy across all rating categories, with the mean being BB. Moreno has worked in EMD for over 20 years, and since 2014, when he began running this fund – initially at Rubrics and then at Mirabaud – he has delivered a cumulative return of 20% over five years, compared with the average fund manager at 1%. The high degree of non-benchmark exposure (about 50%) means the team finds opportunities that are inaccessible to more rigid funds. This highly active approach helps Moreno swerve problems caused by ‘restrictive and concentrated benchmarks’.
There has been rapid change in emerging and frontier markets but rebasing and reweighting of the benchmarks is very slow. EM benchmarks currently hold only 46% of the hard currency universe, 25% of the corporate hard currency universe, and just 10% of the local currency universe. In short, the benchmark simply does not access the range of opportunities these markets have to offer.
Kames Global Diversified Income Fund
Fund
Vincent McEntegart has been managing the Kames Global Diversified Income Fund for six years and is well-versed to the changeable financial climate. Curabitur blandit tempus porttitor. Aenean lacinia bibendum nulla sed consectetur.
Manager
Vincent McEntegart
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An interesting feature of the vehicle is its maturity profile. The manager focuses on keeping the interest rate risk on the fund relatively low, with an average duration of between three and four years. This should help ensure better transparency in the bonds in which the fund invests – as maturity dates get closer, when all else is equal, it is easier to predict cashflows on bonds – and to lower volatility on the fund.
However, one of the major risks, in the manager’s view, is liquidity. To protect against this, Moreno invests using a staggered approach, with bonds maturing virtually every month. This provides a constant source of liquidity to the fund and allows the manager to invest in new opportunities as they arise. This is an unusual approach but one that makes a lot of sense for an asset class which can be illiquid, is often driven by sentiment and where opportunities can change quickly. The relatively new strategy has met its objectives for the past two three-year rolling periods, delivering 7.9% and 6.8%, respectively.
The performance objective is clearly articulated and, although it is too early to tell if the manager can meet his objective over the long term, it seems realistic and achievable. The low-duration approach, with a waterfall of bonds maturing each month, is a differentiator and should provide a good source of liquidity, allowing Moreno to take full advantage of opportunities as they arise across markets.
This flexible approach makes sense in such a market, which has many moving parts, allowing investors to outsource asset allocation decisions within the various EMD sectors to an expert in the asset class.
AUTHOR_ VICTORIA HASLER
“The flexible mandate allows the manager to take advantage of a wide variety of opportunities across emerging debt markets.”
While the manager has full flexibility to move away from this neutral allocation in any way he desires, and he has done so in the past, the fund currently is relatively close to this neutral allocation. The approach is used to ensure there is plenty of diversification in the fund. While hard currency bonds are perhaps the more traditional part of EMD indices, the allocation to local currency bonds allows the fund to take advantage of the huge and continuing growth in local currency markets. In addition, up to 20% of the fund can be invested in frontier markets. These are countries that are typically not included in the benchmark, often have limited debt, and perhaps have not been issuing bonds for a long time or have not built out a full yield curve.
The advantage of investing in these markets is that they tend to have relatively low correlations to the more established countries in the benchmark, thus offering a source of diversification in the portfolio.
The flipside of this is they may at times present liquidity challenges, although the manager addresses this in how he structures the fund. The allocation to corporate bonds offers further diversification and a source of potential capital gains on the portfolio.
While the strategy has been running for five years, the Mirabaud - Global Emerging Market Bond Fund is relatively new, having launched in October 2017. Manager Moreno has more than 20 years of experience investing in emerging market debt, and uses an unconstrained approach focusing on total returns. The process aims to control volatility, mitigate drawdowns and ensure liquidity.
Moreno has been running the fund since its inception in October 2017, though his personal experience dates back a long way before this and includes spells at Dresdner Kleinwort Benson, Deutsche Bank, Union Investment, Global Evolution and Rubrics Asset Management. Together with the emerging market debt (EMD) team, Moreno draws upon the highly integrated fixed-income platform at Mirabaud, which includes dedicated global credit analysts, and several senior and experienced individuals such as Andrew Lake, head of fixed income at Mirabaud.
The fund is focused on providing total returns for investors, and this is reflected in the performance objective, which is to produce returns of 5-7% per annum, net of fees, over rolling three-year periods, while controlling volatility, targeting a value at risk of 3-6% per annum.
To achieve the fund’s objectives, the manager can allocate dynamically between hard and local currency bonds, governments and corporates in order to fully take advantage of the wide variety of opportunities available across emerging debt markets. The fund’s ‘neutral’ allocation is 60% hard currency bonds, 40% local currency and 70% sovereign, 30% corporate bonds.
Interesting EMD strategy draws on a wealth of experience
Victoria Hasler, Head of Research, Square Mile Investment
Square Mile
Perspective
Fund buyers' perspective
Three fund buyers discuss the threats and opportunities in emerging market debt and how they use the asset class.
Market Reaction
Next
Jonathan Woo_ investment research_ Santander Asset Management
×
“There has been considerable structural reform in giant markets like India, China and the Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Scott Spencer_ Investment Manager_ F&C Multi-manager solutions, BMO Global Asset Management
“The key rationale behind Income Maximiser is the delivery of a 7% yield. The use of derivatives in the portfolio means the upside is therefore limited but we find the fund is a lower beta way of getting equity exposure as well as some downside protection.”
“The fund managers of Schroder Income [Nick Kirrage and Kevin Murphy] pick the stocks, and the derivatives for Income Maximiser are then written accordingly. We like the fact that derivatives provide a diversification element and we have a great deal of confidence that the derivatives are run by a separate team. It is a very different skill set and is a USP of theirs.”
Richard Philbin_ CIO_ Wellian Investment Solutions
Mona Shah_ head of collectives_ Rathbones
“After years of lacklustre performance, Asia and the emerging world experienced a resurgence last year, driven by rising commodity prices and a fundamental shift in favour of more cyclical sectors like financials, energy and materials. But many of the fortunes of Asia and emerging markets are driven by sentiment from the West, which was negatively affected by the US election in November. While markets have regained their initial losses, we’ve had no more clarity on what Donald Trump’s policies will mean with regards to global trade and protectionism. For this reason, we believe that diversification should offer benefits in a period where markets are likely to be volatile. In addition, the economies in Asia-Pacific are showing increasing dependence on domestic demand, and we believe funds exposed to growing demand from consumers in China, for example, may be better placed to withstand headwinds from the US.”
Robert Shepherd_ Director_ Bright & Co.
We were on the lookout for something different and, let’s face it, 4% or lower is the norm in this environment. So this is attractive”
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Achievable, sustainable, reliable
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Fund
Manager
Perspective
Fund Buyer
Perspective
This demo version has been optimised for desktop, laptop and tablet. Smartphones, iPhones will be supported in the next version.
to bring you insight, research and market views
together with an explanation of the strategy
directly from the fund manager himself.
Axis analyses the fund from four perspectives
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Daniel Moreno has been lead manager of the fund since November 2017. Prior to joining Mirabaud Asset Management, Moreno was head of emerging market debt at Rubrics Asset Management.
Senior Portfolio Manager, Mirabaud Asset Management
Puneet Singh joined Mirabaud as senior portfolio manager in October 2018. He joined Mirabaud from Blackrock where he was portfolio manager focusing on emerging market debt within the global fixed income group.
Head of Emerging Market Debt, Mirabaud Asset Management
Daniel Moreno
Puneet Singh
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Scroll down to see what Square Mile has to say.
Scroll down to see what Square Mile has to say...
Moreno has been managing the EMD fund for around 18 months but the strategy has been running for five years and he has more than 20 years’ experience in this asset class. He also draws on the expertise of Mirabaud’s wider fixed-income team, including head of fixed income Andrew Lake.Scroll down to read more...
While the strategy has been running for five years, the Mirabaud - Global Emerging Market Bond Fund is relatively new, having launched in October 2017. Manager Moreno has more than 20 years of experience investing in emerging market debt, and uses an unconstrained approach focusing on total returns. The process aims to control volatility, mitigate drawdowns and ensure liquidity.
Moreno has been running the fund since its inception in October 2017, though his personal experience dates back a long way before this and includes spells at Dresdner Kleinwort Benson, Deutsche Bank, Union Investment, Global Evolution and Rubrics Asset Management. Together with the emerging market debt (EMD) team, Moreno draws upon the highly integrated fixed-income platform at Mirabaud, which includes dedicated global credit analysts, and several senior and experienced individuals such as Andrew Lake, head of fixed income at Mirabaud.
The fund is focused on providing total returns for investors, and this is reflected in the performance objective, which is to produce returns of 5-7% per annum, net of fees, over rolling three-year periods, while controlling volatility, targeting a value at risk of 3-6% per annum.
To achieve the fund’s objectives, the manager can allocate dynamically between hard and local currency bonds, governments and corporates in order to fully take advantage of the wide variety of opportunities available across emerging debt markets. The fund’s ‘neutral’ allocation is 60% hard currency bonds, 40% local currency and 70% sovereign, 30% corporate bonds.
While the manager has full flexibility to move away from this neutral allocation in any way he desires, and he has done so in the past, the fund currently is relatively close to this neutral allocation. The approach is used to ensure there is plenty of diversification in the fund. While hard currency bonds are perhaps the more traditional part of EMD indices, the allocation to local currency bonds allows the fund to take advantage of the huge and continuing growth in local currency markets. In addition, up to 20% of the fund can be invested in frontier markets. These are countries that are typically not included in the benchmark, often have limited debt, and perhaps have not been issuing bonds for a long time or have not built out a full yield curve.
The advantage of investing in these markets is that they tend to have relatively low correlations to the more established countries in the benchmark, thus offering a source of diversification in the portfolio.
The flipside of this is they may at times present liquidity challenges, although the manager addresses this in how he structures the fund. The allocation to corporate bonds offers further diversification and a source of potential capital gains on the portfolio.
An interesting feature of the vehicle is its maturity profile. The manager focuses on keeping the interest rate risk on the fund relatively low, with an average duration of between three and four years. This should help ensure better transparency in the bonds in which the fund invests – as maturity dates get closer, when all else is equal, it is easier to predict cashflows on bonds – and to lower volatility on the fund.
However, one of the major risks, in the manager’s view, is liquidity. To protect against this, Moreno invests using a staggered approach, with bonds maturing virtually every month. This provides a constant source of liquidity to the fund and allows the manager to invest in new opportunities as they arise. This is an unusual approach but one that makes a lot of sense for an asset class which can be illiquid, is often driven by sentiment and where opportunities can change quickly. The relatively new strategy has met its objectives for the past two three-year rolling periods, delivering 7.9% and 6.8%, respectively.
The performance objective is clearly articulated and, although it is too early to tell if the manager can meet his objective over the long term, it seems realistic and achievable. The low-duration approach, with a waterfall of bonds maturing each month, is a differentiator and should provide a good source of liquidity, allowing Moreno to take full advantage of opportunities as they arise across markets.
This flexible approach makes sense in such a market, which has many moving parts, allowing investors to outsource asset allocation decisions within the various EMD sectors to an expert in the asset class.
Victoria Hasler, Head of Research,
Square Mile Investment
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market viewpoints, together with the
to bring you incisive analysis, research and
Fund Manager’s own investment strategy.
Axis interrogates the fund from four perspectives
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Mirabaud - Global Emerging
Market Bond Fund
This fund’s maturity waterfall targets duration and liquidity risk inherent in hard currency, and its high active management helps manager Daniel Moreno reduce volatility risk in local currency sovereign. It can help investors find good returns while managing exposure to key EM debt risks.
Review By Nicola Brittain at Last Word
Management. Puneet Singh, Senior Portfolio Manager, Mirabaud Asset Management joined Mirabaud as senior portfolio manager in October 2018. He joined Mirabaud from Blackrock where he was portfolio manager focusing on emerging market debt within the global fixed income group.
Daniel Moreno, Head of Emerging Market Debt, Mirabaud Asset Management has been lead manager of the fund since November 2017. Prior to joining Mirabaud Asset Management, Moreno was head of emerging market debt at Rubrics Asset
Moreno has been managing the EMD fund for around 18 months but the strategy has been running for five years and he has more than 20 years’ experience in this asset class. He also draws on the expertise of Mirabaud’s wider fixed-income team, including head of fixed income Andrew Lake. Disclaimer »
“After a difficult start to 2018 for EMD, as a strengthening US dollar triggered successive currency/debt crises in Turkey and Argentina, performance was up at the end of the year. Moreno’s unique approach mitigates the volatility of an unpredictable asset class while allowing for upside capture. A ‘maturity waterfall’ provides maturing bonds to re-invest each month and offers continuous liquidity for taking advantage of market opportunities.”
Tom Buffham_senior analyst_Octopus Investments
Tony Lawrence_ senior investment manager_ 7IM
“The EMD space has utterly transformed since becoming an asset class in its own right but it is still woefully underallocated in most strategies, often as investors have been burnt by extreme volatility. Investing with a manager who can opportunistically take advantage of cheap currencies, manage portfolio risk holistically while keeping a close eye on liquidity, should deliver a solid risk-adjusted return. Moreno certainly ticks a lot of these boxes.”
Alex Harvey_ portfolio manager_ Momentum
“EMD remains one of our favoured sectors, with the relatively high carry providing a cushion against any renewed yield pressures. Mirabaud Emerging Market Debt blends the best opportunities in sovereign, corporates, hard currency or local. Incorporating local bonds usually increases the volatility of such strategies, but the team at Mirabaud has done well to achieve a lower blended volatility than the hard currency index alone since the fund’s inception in Q4 2017.”
and market views together
Axis analyses the fund
strategy directly from the
from four perspectives to
bring you insight, research
fund manager himself.
with an explanation of the
Moreno has been managing the EMD fund for around 18 months but the strategy has been running for five years and he has more than 20 years’ experience in this asset class. He also draws on the expertise of Mirabaud’s wider fixed-income team, including head of fixed income Andrew Lake. Disclaimer »
Tom Buffham_ senior analyst_ Octopus Investments
“After a difficult start to 2018 for EMD, as a strengthening US dollar triggered successive currency/debt crises in Turkey and Argentina, performance was up at the end of the year. Moreno’s unique approach mitigates the volatility of an unpredictable asset class while allowing for upside capture. A ‘maturity waterfall’ provides maturing bonds to re-invest each month and offers continuous liquidity for taking advantage of market opportunities."
“The EMD space has utterly transformed since becoming an asset class in its own right but it is still woefully underallocated in most strategies, often as investors have been burnt by extreme volatility. Investing with a manager who can opportunistically take advantage of cheap currencies, manage portfolio risk holistically while keeping a close eye on liquidity, should deliver a solid risk-adjusted return. Moreno certainly ticks a lot of these boxes."
Scroll down to see what the Fund Managers have to say...
Scroll down to see what the Fund Buyers have to say...
as at 4th Feb 2019
Average
volatility
Duration
range
Non
benchmark
Top
holding
Yield
Rating
Mirabaud - Global Emerging Market Bond Fund
1
2
3
4
5
6
7
8
9
0
yrs
B
BB
BB-
T
TU
TUR
TURK
TURKE
TURKEY
Source: Morningstar
MORENO'S RETURN PERFORMANCE VS
THE AVERAGE EM FIXED-INCOME MANAGER'S PERFORMANCE %
Jan ‘18
-10
30
EM fixed-income manager average
10
Jan ‘15
-20
20
Dec ‘18
Jan ‘14
Jan ‘17
Jan ‘16
MORENO'S RETURN PERFORMANCE VS THE AVERAGE
EM FIXED-INCOME MANAGER'S PERFORMANCE %
Source: Mirabaud Asset Management
as at 4 Feb '19
LOWER DURATION & HIGHER YIELD
Duration (years)
US Treasuries (AAA)
Sovereign HC (BB+)
Mirabaud Global Emerging Market Bond Fund (BB-)
Corporate HC (BBB-)
12
Yield (%)
Sovereign LC (BBB)
US High Yield (B+)
8