Threadneedle has launched a new Emerging Market Local fund, designed to capture the ‘substantial' yields and currency undervaluation available in frontier countries.
The UK-domiciled OEIC is managed by Richard House, a 15-year veteran in local emerging market debt.
House says the emerging markets have experienced substantial improvements in social, political and economic fundamentals in recent years.
“This trend has increasingly allowed emerging market governments to issue bonds in their own currencies leading to the development of domestic yield curves (often extending past 20 years),” he says.
“At the same time, macroeconomic reform has resulted in the creation of a pension fund industry in many countries.
“This, together with the ongoing search for yield on the part of international investors, has broadened the demand for local currency debt.”
Threadneedle noted spreads in dollar-denominated emerging market bonds over US Treasuries have tightened significantly over the past three years; a trend predicted to develop in local currency bonds.
“The superior yield, and the likelihood of capital gains as the spread narrows, are two of the main reasons why we are seeing such strong demand for local currency bond products,” House says.
Threadneedle also believes many emerging currencies are “significantly undervalued”.
“Long-term appreciation of emerging market currencies provides an additional source of returns,” House adds. “So we will be looking to add value through both duration and FX exposure.”
The fund has a £2000 minimum investment, 3.75% initial charge, 1.5% annual management charge and negotiated commission.
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