switzerlandde
Seizing opportunities in emerging markets credits

Seizing opportunities in emerging markets credits

08-09-2021 | Research
Global credit investors can no longer easily ignore emerging markets (EM) hard-currency corporate bonds. These assets now comprise a significant portion of global credit benchmarks. We have, therefore, included these bonds in the investment universes for some of our Multi-Factor Fixed Income strategies following years of extensive research.
  • Patrick  Houweling
    Patrick
    Houweling
    Co-Head of Quant Fixed Income and Lead Portfolio Manager
  • Frederik  Muskens
    Frederik
    Muskens
    Researcher

Speed read

  • Factor premiums exist in the EM hard-currency corporate bond market
  • These are primarily driven by bond and issuer selection rather than country allocation
  • Our enhanced factor definitions led to even better risk-adjusted returns in our tests

The importance and size of the EM hard-currency corporate bond market has grown considerably over the past two decades, from USD 50 billion in 2001 to USD 1.8 trillion in 2018. As a result, these assets now comprise a significant portion of global credit benchmarks. Over time, and given the widening opportunity set, our factor investing research has expanded into this space.

In one of our recent studies1, we analyzed whether generic credit factors known from developed markets also work in emerging markets. We found that low risk, value, momentum and size, as well as the combined multi-factor portfolio, delivered significantly higher risk-adjusted returns compared with passively investing in the EM credit market index.

Zu den aktuellen Einblicken
Zu den aktuellen Einblicken
Anmelden

Figure 1 | Annualized Sharpe ratios (2001-2018)

Source: Robeco, Bloomberg Barclays. This figure shows the Sharpe ratios of the size, low-risk, value, momentum and multi-factor portfolios for emerging markets hard currency corporate bonds over the 2001-2018 sample period. We use excess returns over duration-matched US Treasuries, German Bunds, and UK Gilts for US dollar, euro, and sterling denominated bonds, respectively. If an issuer has more than a 2% market value-weight in the index in a month, the market values of its bonds are proportionally scaled down to cap the issuer weight at 2%.

We also investigated whether the higher risk-adjusted returns had been achieved despite or because of exposure to country-specific risks. Investors in EM credits are highly exposed to these risks, as the numerous credit events and crises in emerging markets over the past few decades have demonstrated. These risks tend to have a material impact on a country’s fundamentals, as well as the creditworthiness of corporate issuers from the country.

The efficacy of factors in EM credits is predominantly driven by bond and issuer selection

We observed that factor portfolios corrected for country risk also delivered higher risk-adjusted returns than the market, albeit slightly lower than the factor portfolios allowing for substantial country exposures. Therefore, we concluded that the efficacy of factors in EM credits is predominantly driven by bond and issuer selection, and to a much lesser extent by country allocation.

Figure 2 | Annualized Sharpe ratios (2001-2018)

Source: Robeco, Bloomberg Barclays. This figure shows the Sharpe ratios of the country-neutral size, low-risk, value, momentum, and multi-factor portfolios for emerging markets hard currency corporate bonds over the 2001-2018 sample period. The country-neutral portfolios are formed by first selecting the 20% best bonds per country and then market value-weighting all selected bonds to form the final factor portfolio. We use excess returns over duration-matched US Treasuries, German Bunds, and UK Gilts for US dollar, euro, and sterling denominated bonds, respectively. If an issuer has more than a 2% market value-weight in the index in a month, the market values of its bonds are proportionally scaled down to cap the issuer weight at 2%.

The results of our study provide a good theoretical foundation for the use of credit factors in emerging markets. However, while academic factor definitions are useful to document factor premia, in practice they can expose investors to unnecessary risks.

We therefore also tested whether our enhanced factor definitions work in emerging markets. These definitions take into account additional types of information, such as accounting and equity market data, allowing for a more complete risk assessment, while limiting exposure to unrewarded risks. We found that our enhanced factor definitions led to better risk-adjusted returns compared with generic factors.

In addition to using our enhanced factor definitions, we also incorporate fundamental company research in our live strategies to complement our quantitative risk assessments. Indeed, not all risks are quantifiable. Political, geopolitical and sustainability risks can have a material impact on EM credit returns. Thus, when experienced members of our fundamental credit analyst team identify risks that are beyond the scope of our model, we remove the corresponding credits from the list of investable bonds.

The results of our study provide a good theoretical foundation for the use of credit factors in emerging markets

Moreover, we integrate liquidity management into our portfolio construction process. In our live strategies, we use real-time liquidity information, collated from multiple trading and pre-trade transparency platforms, to estimate a tradeable amount for each top-ranked bond, as well as a target price. This typically results in cost-efficient implementation that provides maximum exposure to factors.

Following years of extensive research in EM credits, we decided to include these bonds in the investment universes of our Global Multi-Factor Credits, Global Multi-Factor High Yield and Global Multi-Factor Bonds strategies as of February 2021. The aim is to benefit from alpha opportunities that exist in this segment, and to allow the strategies to close their structural underweight allocations to the asset class, as they are benchmarked against global indices which contain EM credit constituents.

1 See: Dekker, L., Houweling, P., and Muskens, F., June 2021, “Factor investing in emerging market credits”, Journal of Index Investing.

Read our full research paper

Disclaimer

Dieser Bericht ist für Nutzer aus Ländern, in denen das Anbieten ausländischer Finanzdienstleistungen nicht gestattet ist, wie z. B. für US-Personen, nicht verfügbar.

Ihre Daten werden nicht an Dritte weitergeben. Diese Informationen richten sich ausschließlich an professionelle Anleger. Alle Anfragen werden überprüft.

Logo

Zugangsbeschränkung / Haftungsausschluss

Die auf diesen Seiten enthaltenen Informationen dienen Marketingzwecken und sind ausschliesslich für (i) qualifizierte Anleger gemäss dem Schweizer Bundesgesetz über die kollektiven Kapitalanlagen vom 23. Juni 2006 („KAG“), (ii) Professionelle Kunden gemäss Anhang II der Richtlinie über Märkte für Finanzinstrumente (2014/65/EU; „MiFID II“) mit Sitz in der Europäischen Union oder im Europäischen Wirtschaftsraum mit einer entsprechenden Lizenz zur Erbringung von Vertriebs- / Angebotshandlungen im Zusammenhang mit Finanzinstrumenten oder für (iii) solche, die hiermit aus eigener Initiative entsprechende Informationen zu spezifischen Finanzinstrumenten erfragen und als professionelle Kunden qualifizieren.

Die Fonds haben ihren Sitz in Luxemburg oder den Niederlanden. Die ACOLIN Fund Services AG, Postanschrift: Affolternstrasse 56, 8050 Zürich, agiert als Schweizer Vertreter der Fonds. UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich, Postanschrift: Europastrasse 2, P.O. Box, CH-8152 Opfikon, fungiert als Schweizer Zahlstelle. Der Prospekt, die Key Investor Information Documents (KIIDs), die Satzung, die Jahres- und Halbjahresberichte der Fonds sind auf einfache Anfrage hin und kostenlos im beim Schweizer Vertreter ACOLIN Fund Services AG erhältlich. Die Prospekte sind auch über die Website www.robeco.ch verfügbar.

Einige Fonds, über die Informationen auf dieser Website angezeigt werden, fallen möglicherweise nicht in den Geltungsbereich des KAG und müssen daher nicht über eine entsprechende Genehmigung durch die Eidgenössische Finanzmarktaufsicht FINMA verfügen. Einige Fonds sind in Ihrem Wohnsitz- / Sitzstaat möglicherweise nicht verfügbar. Bitte überprüfen Sie den Registrierungsstatus in Ihrem jeweiligen Wohnsitz- / Sitzstaat. Um die in Ihrem Land registrierten Produkte anzuzeigen, gehen Sie bitte zur jeweiligen Länderauswahl, die auf dieser Website zu finden ist, und wählen Sie Ihr Wohnsitz- / Sitzstaat aus.

Weder Informationen noch Meinungen auf dieser Website stellen eine Aufforderung, ein Angebot oder eine Empfehlung zum Kauf, Verkauf oder einer anderweitigen Verfügung eines Finanzinstrumentes dar. Die Informationen auf dieser Webseite stellen keine Anlageberatung oder anderweitige Dienstleistung der Robeco Switzerland Ltd dar. Eine Investition in ein Produkt von Robeco Switzerland Ltd sollte erst erfolgen, nachdem die entsprechenden rechtlichen Dokumente wie Verwaltungsvorschriften, Prospekt, Jahres- und Halbjahresberichte konsultiert wurden.

Durch Klicken auf "Ich stimme zu" bestätigen Sie, dass Sie resp. die von Ihnen vertretene juristische Person eine der oben genannten Kategorien von Adressaten fallen und dass Sie die Nutzungsbedingungen für diese Website gelesen, verstanden und akzeptiert haben.

Nicht Zustimmen