Erste AM launches fund for EM corporate bonds with shorter maturities
The Austrian Erste Asset Management is launching its Bond Emerging Markets Corporate Short Term fund with an institutional and a retail tranche.
The fund invests in emerging markets corporate bonds in hard currency in the shorter maturity universe, largely with maturities of less than three years. Thus, it allows investors to position themselves defensively amid rising interest rates while providing them with attractive spreads.
The fund is denominated in US dollar and was launched on 3 April at an initial volume of $20.1m.
The strategy will combine shorter maturities and bonds from emerging markets to give investors the chance of above-average yields, as the short maturity segment of emerging markets corporate bonds still offers attractive spreads, the Austrian investment firm said.
“The spreads of bonds with a maturity of one to three years are only 20bps lower than for a maturity of seven to ten years,” fund manager Péter Varga explains. “The targeted addition of the 3Y-5Y segment allows investors to benefit from further positive effects. The spreads are here at the moment clearly above those of all the other investment horizons.”
Varga added that bonds with shorter maturities can offer better stability in an environment of rising interest rates.
“Members of the Fed expect the Fed funds rate to have increased to 1.375% by the end of 2017, and to be above 2% by the end of 2018. For the long run, they expect the rates to level off at 3%”, Varga explains, adding that investors who failed to adjust their bond strategies in time would face substantial losses in income.
The start portfolio of the fund consists of 71 titles with a minimum rating of B-. Corporate bonds with a maturity of less than three years account for about two thirds of assets under management.
China (13%), Brazil (13%), India (10%), Turkey (9%), and Russia (9%) command the biggest country weightings. The yield of the entire portfolio in US dollar is above 3.7%. The modified duration is 2.5%.