Loomis Sayles Short Term Emerging Markets Debt

Theme overview

Emerging markets (EM) are prone to market inefficiencies. EM companies may overcompensate investors relative to downgrade and default risk, leading to an EM risk premium. Utilizing an investment process centered on deep, fundamental analysis and a robust quantitative toolkit, the Loomis Sayles Emerging Markets Debt team seeks to uncover mispriced EM credit opportunities and deliver the excess premium to investors.

Investment thesis

Sources of alpha: inefficient pricing can result from a dynamic and idiosyncratic relationship.

Reasons to consider

The market value of the combined EM sovereign and corporate universe now stands on par with the US and Euro high yield markets. Comprised of investment grade and high yield credit issuers across 70 countries, it is a diverse universe for the investment team to look for value and uncover attractive opportunities.

The portfolio managers work closely with Loomis Sayles’ firm-wide credit and macro/sovereign research resources to generate ideas across the investment universe. The team of EM sovereign and corporate credit specialists follow 70 EM countries and 600+ emerging markets corporate, sovereign, and quasi-sovereign issuers. The firm has over 20 research/trading resources dedicated to EMD located around the world.

EM corporates, on a ratings and duration-adjusted basis, consistently offer a spread premium to sovereign and US peers. Given this persistent premium, the team believes the value proposition in EM resides within the corporate space.

The fund seeks to minimize volatility and drawdown by following these investment parameters: Average account rating of IG and explicit CCC credit rating exclusion; issuer, sector and country diversification across more than 100 holdings; short duration to help minimize US rate risk (account duration: 2-3 years); straightforward portfolio construction without the use of derivatives and local currency.

While emerging market corporate debt is a huge universe, we are really looking to tap into the bigger themes and shifts that are likely to shape tomorrow”.

– Elisabeth Colleran, CFA, Portfolio Manager, Loomis, Sayles & Company

The analyses and opinions referenced herein represent the subjective views of the author(s) as referenced, are as of the date shown and are subject to change without prior notice.

Risks to consider

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income and alternative investments. There is no assurance than any investment will meet its performance objectives of that losses will be avoided. There could be other differences across similar products in the same strategy. Investors should fully understand the risks and other relevant details associated with any investment prior to investing.

The team

Highly experienced investment team led by portfolio managers, Elisabeth Colleran, CFA, David W. Rolley, CFA and Edgardo Sternberg. They each have over 34 years' industry experience and have worked together since 2006.