Emerging Market Debt: Extracting Potential Amidst Complexity

IN THIS PAPER

Market dynamics and investor sentiment: We explore how investor attitudes and asset allocation strategies are evolving.

Alpha generation levers: The report outlines nine potential alpha levers available to active managers—ranging from country selection and credit risk management to tactical currency allocation. But which of these levers are being used in practice, and are they delivering results?

Blended EMD strategies in focus: These are the only strategy types able to harness all available alpha levers. We examine four categories of Blended EMD funds, defined by their benchmark’s local currency allocation, and assess their effectiveness versus standalone strategies offered by the same managers.

WHY DOWNLOAD?

With EMD back on investors’ radars, implementation questions are once again in the spotlight. What level of exposure is now appropriate? Should allocations be revisited in light of shifting macroeconomic conditions? Are active managers truly delivering value—and if so, through which levers?

The report also considers whether a combined Hard and Local Currency approach—via Blended mandates—may be more effective than managing exposures separately. Given the historical underperformance of local currency debt, does it still warrant a place in portfolios, particularly for its potential diversification benefits?

While the data shows that many active EMD managers have outperformed their benchmarks, and that Blended strategies have delivered excess returns, investors should look beyond the numbers to understand what’s driving success. The divergent performance of hard and local currency debt in recent years provides a valuable window into manager skill and strategic positioning.

We hope the analysis and questions raised in this report provide a timely and valuable perspective for investors considering their next steps in Emerging Market Debt.