ING IM Emerging Market Debt Local Currency Bond fund hits $1bn AUM

Inflows from institutions, private banking and retail clients through 2012 helped the ING Investment Management Emerging Market Debt Local Currency Bond fund hit $1bn in assets under management.

The fund, launched in February 2010, was also boosted by flows from Asia and Europe in the past 12 months as investors sought out the returns from the asset class, which ING IM said look attractive on a historical basis against other assets such as equities.

Low volatility has been an added benefit of the asset class.

Rob Drijkoningen, head of Global Emerging Markets Debt at ING IM said: “Robust balance of payments should further strengthen the currencies of emerging economies versus G4 currencies. As institutional investors are still structurally underweight in the asset class we expect support for the asset class to remain strong over the long term. We believe that emerging market’s long term significance cannot be ignored.”

“The relatively low offshore involvement in the regional local bond universe is not proportional to the strengths touched upon above. Emerging local currency bond markets have grown significantly over the last 5 years, and with more governments and corporations looking to issue an increasing amount of debt in their local currencies, we reasonably expect continued growth of the asset class supported by investor demand.”

Raoul Luttik, lead portfolio manager EMD Local Currency strategies, added that in terms of diversifiation, EM local currency bonds offer both value and low correlation to other asset classes.

“Furthermore, numerous country-specific factors such as differences in credit quality and diverse exchange rate policies contribute to the existence of a considerable amount of heterogeneity that can be exploited within the local currency asset class itself,” he said.

ING IM also saw a further $2bn in inflows via segregated mandates from institutional seeking exposure to similar assets the EMD Local Currency Bond fund invests in.

The manager’s outlook for the asset class in 2013 remains positive, bouyed by what it terms a “supportive environment”. It said a number of major themes would prevail through the year:

    • Fundamental strengths of Emerging Markets continue to support expanding of exposure of relative and absolute allocations to this asset class with an emphasis on EM Local Currency bonds and EM Hard Currency Corporates;

    • With Emerging Market Currencies (EMFX) being relatively sensitive to the global cycle and given a more restrained performance of EMFX in the last two years, an overweight to Local Currency bonds is our preferred option; yields are higher than in EM Hard Currency Sovereigns and less sensitive to US-Treasuries;

    • Hard Currency Sovereigns and Corporates are supported by strong demand and limited supply; spreads will likely tighten further, also given continued interest in higher yielding assets;

    • In the base case, we expect Local Currency bonds to deliver 7-10% with EMFX appreciating by 3-5%, while yields remain relatively stable. In this scenario, Hard Currency sovereigns are expected to deliver between 3-6% and Hard Currency Corporates 4-6%.

 

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