US multi-boutique asset manager Principal Global Investors has launched the Finisterre Unconstrained Emerging Markets Fixed Income fund.
The Dublin-domiciled Ucits fund will be managed by EM debt-focused manager Finisterre Capital, owned by Principal Global Investors. Damien Buchet (pictured), partner and chief investment officer, and Christopher Watson, portfolio manager, will run the strategy which will have daily liquidity and seeks to deliver superior risk-adjusted returns with low volatility.
It will invest in an unconstrained way in emerging market fixed income, focusing on opportunities with strong income characteristics and capital appreciation potential.
The fund, whose original strategy was launched in 2013, will target a mix of investors in the UK, Europe, Middle East, Asia and is available via the Principal Fund platform. It will further be registered on major wealth platforms.
In Buchet’s view, most EM economies are facing a long-term transition towards a new domestic growth model, less dependent on China, commodities and global trade.
“However, a significant adjustment has already taken place since 2012 in terms of currency values, policy framework, and credit quality. As a result, growth and stability now return to many countries, although with uneven pace and intensity.
“Competitiveness reforms still need to be implemented in most EM economies over the next few years and political stability and policymakers’ credibility to deliver these changes amidst growth constraints is critical. These fundamental discrepancies, together with the huge technical diversity of the EMD universe in terms of investor types, asset classes and market segments, generate attractive opportunities for flexible and dynamic investors,” said Finisterre Capital’s CIO.
Recent additions to the fund were Egyptian local T-Bills and Brazilian 2-year rates. In external sovereign credit, Buchet said Iraq remains a long-term favourite enjoying continuing support under the IMF program, a gradual improvement in oil prices with less OPEC pressure on production quotas, and a gradually improving security situation while Ukraine is also a gradually improving story respecting its IMF targets and providing attractive risk-adjusted yield.
Commenting on the fund launch, Finisterre’s CIO argued: “We believe that our new fund offers the opportunity for attractive returns with a managed risk profile. A wider range of investors are now able to access this strategy which had previously only been available through institutional mandates. The unconstrained framework means the fund has the freedom to invest where our convictions are strongest. This allows us to differentiate ourselves from benchmarked funds by effectively managing the beta across the portfolio and making strategic and opportunistic decisions on income generation and alpha.”
Nick Lyster, global head of Wealth Advisory Services at Principal Global Investors, said: “We are in an ultra-low yield environment for bonds, and investors are increasingly looking to emerging markets for higher, risk-adjusted fixed income returns. We believe that there are significant opportunities for a wide range of investors to benefit from exposure to an unconstrained approach to emerging market debt. This fund – managed by dedicated EMD experts with a strong track record – offers investors top-tier access to emerging market fixed income opportunities.”
Established in 2002, Finisterre Capital managed assets of $3bn (€2.54bn) in emerging market funds as of 31 July 2017.