- TheAberdeen Emerging Markets Local Currency Bond Fund invests principally in fixed interest securities domiciled in an Emerging Market country and denominated in the currency of that Emerging Market
- Both security selection and currency positions have contributed to performance since the fund's launch
- Currently overweight in Latin America, specifically in Mexico and Brazil
- Underweight in Asia, especially Indonesia, Philippines and Thailand
- Modified duration of 4.6 and yield to maturity of 5.1% as of 31 July 2012
The Aberdeen Emerging Markets Local Currency Bond Fund, also known as “Spicy”, is one of Aberdeen Asset Management’s two fixed income funds available to retail investors in Singapore. We interview the investment team behind this fund to find out what investors can expect from this offering.
Fundsupermart (FSM): What is the investment focus of the Aberdeen Emerging Markets Local Currency Bond Fund and what is the strategy employed by the investment team to achieve this objective?
Aberdeen Asset Management (AAMI): The Aberdeen Emerging Markets Local Currency Bond Fund aims to provide long-term total return through investing all or substantially all of its assets in the Aberdeen Global - Emerging Markets Local Currency Bond Fund* (the “underlying fund”), a sub-fund of the Luxembourg-registered Aberdeen Global. The underlying fund invests at least two thirds of its assets in fixed interest securities which are issued by corporations with their registered office in, and/or by government related bodies domiciled in an Emerging Market country and denominated in the currency of that Emerging Market as at the date of the investment.
FSM: What has been the greater driver of returns for the fund?
AAM: Shorter term, the main contributor to returns over the past month has been security selection decisions, specifically due to overweight positioning Mexican and South African rates. Currency positioning has also contributed to performance.
FSM: Since the fund’s launch, we have witnessed rather volatile returns from the fund. What were the causes of this volatility?
AAM: The fund’s performance has been driven mainly by the movements in emerging markets currencies, which have been very volatile over the year given they trade more with risk appetite than bonds. It was evidenced in the portfolio how large an impact certain currencies had on performance. During this period, the worst performing currencies were the Brazilian real, the South African rand, the Hungarian forint; on the other hand, the Peruvian New Sol, the Turkish lira and the Colombian peso rose.
FSM: What are some of the investment ideas the fund is positive on currently?
AAM: The fund is overweight in Latin America, specifically favouring Mexico and Brazil in both rates and FX. Elsewhere the fund is overweight in South Africa while maintaining overweight FX exposure in Poland and Malaysia. The portfolio also has off-benchmark positions in Uruguay inflation-linked bonds and South Korean won.
FSM: What ideas or themes is the portfolio underweight on?
AAM: The fund is currently underweight in Asia, seeing little value in Indonesia, Philippines and Thailand. In Latin America, we are underweight in Chile, Colombia and Peru and in Eastern Europe we are negative on Hungary, Russia and Turkey.
FSM: From the perspective of a local investor, what are the key factors for being invested in the Aberdeen Emerging Markets Local Currency Bond Fund?
AAM: The fund provides investors with the opportunity to invest within local currency emerging market debt which has explicit exposure to currency and interest rate dynamics that can be actively managed. This can offer investors significant diversification from hard currency emerging market debt and other major asset classes.
In addition despite often being of higher credit quality than hard currency debt, local currency debt has historically provided higher returns relative to the level of volatility. Furthermore, local currency debt can be used as a natural hedge against developed market currencies.
Aberdeen has a long history of investing in both the emerging market debt and equity markets with up to a third of our assets under management invested in emerging markets. The fund applies an unconstrained approach, investing across the entire emerging market debt local currency universe, identifying the best opportunities available and creating diversified portfolios. The team is well-resourced, stable and highly experienced with a robust track record of investing in Emerging Market debt across a number of market cycles.
FSM: Lastly, what is the latest duration and yield numbers for the fund?
AAM: The fund had a modified duration of 4.6 as at 31 July 2012. The fund yield to maturity was 5.1% as at the 31 July.
With the Aberdeen Emerging Markets Local Currency Bond Fund’s participation in the WISE@fundsupermart.com programme, investors will be able to participate in the fund’s steady growth at 0% sales charge. In conjunction with the launch of WISE, investors with at least SGD 100,000 worth of investments in any of the WISE fixed income funds will automatically participate in our exciting lucky draw. In addition, investors who need any advice with regards to theAberdeen Emerging Markets Local Currency Bond Fund or their portfolios may read more about the fund in its Fund Review or contact our friendly Client Investment Specialist team at email@example.com.
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