EM is also for the bad times

With a combination of ongoing trade tensions and slowing global growth, the rest of the year is likely to be more challenging, in Alejandro’s view. However, he stressed that this isn’t a reason to run away from EMD. There is often a ‘knee-jerk’ reaction from investors when there is a global shock – but more positively, this reaction can provide great buying opportunities in the EMD universe.

 

When considering the impact that a global downturn might have on EM, Alejandro thinks it’s important to differentiate between two groups: local currency EM debt and EM equities; and hard currency EM debt. While it’s true that historically EM local currency debt and EM equities have underperformed during downturns, the performance of hard currency debt has actually been relatively consistent throughout the cycle. Looking at past data, recovery in EM hard currency debt has been much quicker and stronger following global shocks; it’s about being positioned for those shocks.

EM hard currency debt was a good place to hide in 2008

With a combination of ongoing trade tensions and slowing global growth, the rest of the year is likely to be more challenging, in Alejandro’s view. However, he stressed that this isn’t a reason to run away from EMD. There is often a ‘knee-jerk’ reaction from investors when there is a global shock – but more positively, this reaction can provide great buying opportunities in the EMD universe.

 

When considering the impact that a global downturn might have on EM, Alejandro thinks it’s important to differentiate between two groups: local currency EM debt and EM equities; and hard currency EM debt. While it’s true that historically EM local currency debt and EM equities have underperformed during downturns, the performance of hard currency debt has actually been relatively consistent throughout the cycle. Looking at past data, recovery in EM hard currency debt has been much quicker and stronger following global shocks; it’s about being positioned for those shocks.

 

 

EM hard currency debt was a good place to hide in 2008

For example, if you were invested in the S&P 500 Index or EM equities in 2008, it took approximately three years to get back your initial investment. In contrast, if you were invested in EM hard currency debt, it only took nine months to recover your losses2.


Furthermore, if you look back over a longer period, EM hard currency debt has returned a 10% annual return over the past 25 years, which is similar to the returns of the S&P 500 Index, but with only half the volatility.3

Fig 2. EM hard currency debt was a good place to hide in 2008

Source: Bloomberg, 2008-2011.

Fig 3. Similar return to S&P with better downside protection

Source: Bloomberg, 1993 to 2019.

A large, underrepresented universe offering diversification

While emerging markets are sometimes treated as a homogenous investment universe, in reality, they are widely diversified. The EMD universe comprises 83 countries, at varying stages of their economic cycles, and encompasses bonds rated from AAA to CCC with maturities of up to 100 years.

 

As well as being diversified, EMD is also a heavily underrepresented asset class. At $20tn, EMD accounts for 27% of the global debt market, but it is underrepresented in global bond market indices (where it accounts for approximately 10%). Furthermore, monthly surveys run by JPMorgan and Bank of America Merrill Lynch show that global investors tend to be significantly underweight EMD, with only around 5-8% of their portfolios invested in EM.

IG spread is likely to outperform HY
With the backdrop for the rest of the year likely to be increasingly challenging, and the Federal Reserve likely to cut interest rates further, Alejandro and the team currently see value in investment grade (IG), so they have been increasing the portfolio’s IG exposure. Alejandro thinks the current environment makes it particularly important to focus on holding a portfolio of bonds issued by those corporates and governments that have the strongest fundamentals, which should be ready for the next cycle.

Volatility presents exciting opportunities

To conclude, in the first half of the year, investors were able to generate positive returns regardless of sector, country or regional allocation; however, a combination of ongoing trade tensions and slowing global growth suggests that the rest of the year is likely to be more challenging. In light of this more challenging backdrop, Alejandro and the team have taken steps to de-risk parts of the portfolio, such as high yield and local currency.

 

With over $16tn of global bonds currently trading with negative yields, Alejandro believes that EMD is a particularly appealing asset class on a total return basis, as investors will look for opportunities outside of developed markets in order to generate returns. Fortunately, for experienced, active investors, volatility presents exciting investment opportunities. For Alejandro, country differentiation and an agile investment style is key to finding the best risk-adjusted returns in EM.

Fig 4. Jupiter Global Emerging Markets Corporate Bond

Fig 5. Jupiter Global Emerging Markets Short Duration Bond

Past performance is no indication of current or future performance, doesn’t take into account commissions and costs incurred on the ussue/redemption of shares. Quoted yields are gross of fees, not guaranteed and may change in the future.

Source: Jupiter, as at 31.07.19. LHS: Inception: 07.03.17 (data run from 01.04.17). Performance is Jupiter Global Emerging Markets Corporate Bond Fund I USD Acc. Data annualized. RHS: Inception 05.09.17 (data run from 01.10.17). Performance is Jupiter Global Emerging Markets Short Duration Bond Fund I USD Acc.

 

*Performance shown again custom peer group made up of EM short duration bond funds only.

Fig 6. Jupiter EM Corporate Bond

Past performance is no indication of current or future performance, doesn’t take into account commissions and costs incurred on the ussue/redemption of shares.

Source: Jupiter, as at 30.06.19, NAV to NAV, gross income reinvested, net of fees. *Inception: 07.03.17 (data run from 01.04.17).

 

Performance is Jupiter Global Emerging Markets Corporate Bond Fund I USD Acc.

Fig 7. Jupiter EM Short Duration

Past performance is no indication of current or future performance, doesn’t take into account commissions and costs incurred on the ussue/redemption of shares.

Source: Jupiter, as at 30.06.19, NAV to NAV, gross income reinvested, net of fees. *Inception: 05.09.17 (data run from 01.10.17). Performance is Jupiter Global Emerging Markets Short Duration Bond Fund I USD Acc.

 

Performance shown against a custom peer group made up of EM short duration bond funds only within the Morningstar EAA OE Global Emerging Markets Bond.

Cumulative performance (%)

Past performance is no indication of current or future performance Performance data does not take into account commissions and costs incurred on the ussue/redemption of shares.

All fund performance figures: source: Morningstar, NAV to NAV, gross income reinvested, net of fees, Jupiter Global EM Mkts Corp Bd I $ Acc, to 31/08/2019.

 

*Since inception 08/03/2017.

12-month rolling performance (%)

Past performance is no indication of current or future performance Performance data does not take into account commissions and costs incurred on the ussue/redemption of shares.

All fund performance figures: source: Morningstar, NAV to NAV, gross income reinvested, net of fees, Jupiter Global EM Mkts Corp Bd I $ Acc, to 31/08/2019.

 

*Since inception 08/03/2017.

Cumulative performance (%)

Past performance is no indication of current or future performance Performance data does not take into account commissions and costs incurred on the ussue/redemption of shares.

All fund performance figures: source: Morningstar, NAV to NAV, gross income reinvested, net of fees, Jupiter Global EM Sht Dur Bd I USD Acc, to 31/08/2019.

 

 

*Launched on 6 September 2017.

12-month rolling performance (%)

Past performance is no indication of current or future performance Performance data does not take into account commissions and costs incurred on the ussue/redemption of shares.

All fund performance figures: source: Morningstar, NAV to NAV, gross income reinvested, net of fees, Jupiter Global EM Mkts Corp Bd I $ Acc, to 31/08/2019.

1 Source: IMF, Standard Chartered Research
2 Source: Bloomberg
3 Source: Bloomberg

Risks

Jupiter Global Emerging Markets Corporate Bond:

The fund invests in emerging markets which carry increased volatility and liquidity risks. It invests primarily in bonds which have a low or no credit rating including high yield and distressed bonds. These bonds may offer a higher income but carry a greater risk of default, particularly in volatile markets. Monthly income payments will fluctuate. The fund uses derivatives, which may increase volatility. Investment in financial derivative instruments can introduce leverage risks which can amplify gains or losses in the fund. Counterparty risk may cause losses to the Fund. In difficult market conditions, it may be harder for the manager to sell assets at the quoted price, which could have a negative impact on performance. In extreme market conditions, the fund’s ability to meet redemption requests on demand may be affected. Some share classes charge all of their expenses to capital, which can reduce the potential for capital growth. Please see the Prospectus for information. The KIID and Prospectus are available from Jupiter on request. This fund can invest more than 35% of its value in securities issued or guaranteed by an EEA state.

Jupiter Global Emerging Markets Short Duration Bond:

The fund invests in emerging markets which carry increased volatility and liquidity risks. It may invest in bonds which have a low or no credit rating including high yield and distressed bonds. These bonds may offer a higher income but carry a greater risk of default, particularly in volatile markets. Monthly income payments will fluctuate. In difficult market conditions, it may be harder for the manager to sell assets at the quoted price, which could have a negative impact on performance. In extreme market conditions, the fund’s ability to meet redemption requests on demand may be affected. Some share classes charge all of their expenses to capital, which can reduce the potential for capital growth. Please see the Prospectus for information. The KIID and Prospectus are available from Jupiter on request. This fund can invest more than 35% of its value in securities issued or guaranteed by an EEA state.

Important information

This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term. Past performance is no indication of current or future performance. Performance data does not take into account commissions and costs incurred on the issue and redemption of shares. Company examples are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. It is not an invitation to subscribe for shares in the Jupiter Global Fund (the Company), or any other fund managed by Jupiter Asset Management Limited. The Company is a UCITS fund incorporated as a Société Anonyme in Luxembourg and organised as a Société d’investissement à Capital Variable (SICAV). This information is only directed at persons residing in jurisdictions where the Company and its shares are authorised for distribution or where no such authorisation is required. The sub fund(s) may be subject to various other risk factors, please refer to the Prospectus for further information. Prospective purchasers of shares of the sub fund(s) of the Company should inform themselves as to the legal requirements, exchange control regulations and applicable taxes in the countries of their respective citizenship, residence or domicile. Subscriptions can only be made on the basis of the current prospectus and the KIID, accompanied by the most recent audited annual report and semi-annual report. These documents are available for download from www.jupiteram.com. The KIID and, where required, the Prospectus, along with other advertising materials which have been approved for public distribution in accordance with the local regulations are available in English, Dutch, French, Finnish, German, Italian, Portuguese, Spanish and Swedish. Before subscribing, please read the Prospectus. Hardcopies may be obtained free of charge upon request from any of: The Company Custodian and Administrator: JP Morgan Bank Luxembourg S.A, 6 Route de Trèves, Senningerberg, L-2633, Luxembourg; and from certain of the Company’s distributors; Austria: Jupiter Asset Management International S.A., Vienna branch, Goldenes Quartier, Tuchlauben 7a, 1010 Vienna, Austria; Belgium: BNP Paribas Securities Services, Boulevard Louis Schmidt 2, 1040 Brussels, Belgium; France: CACEIS Bank France, 1/3 Place Valhubert, 75013 Paris, France; Germany: Jupiter Asset Management International S.A., Frankfurt branch, whose registered office is at: Roßmarkt 10, 60311 Frankfurt, Germany; Italy: BNP Paribas Securities Services, Milan branch, Piazza Lina Bo Bardi, 3 20124 Milano, Italy. Allfunds Bank – Milan Branch, Via Bocchetto 6, 20123 Milano, Italy. The Fund has been registered with the Commissione Nazionale per le Società e la Borsa (CONSOB) for the offer in Italy to retail investors; Luxembourg: the Company’s registered office: 6 Route de Trèves, Senningerberg, L-2633, Luxembourg; Netherlands: Jupiter Asset Management International S.A., Netherlands branch, Kennedy Toren, Kennedy Plein 200, 5611 ZT Eindhoven, Netherlands. Chamber of Commerce number: 71812393; Spain: Allfunds Bank, C/ La Estafeta 6, Edificio 3, 28109 Alcobendas, Madrid, Spain. For the purposes of distribution in Spain, the Company is registered with the Spanish Securities Markets Commission – Comisión Nacional del Mercado de Valores (“CNMV”) under registration number 1253, where complete information, including a copy of the marketing memorandum, is available from the Company authorised distributors. Subscriptions should be made through a locally authorised distributor. The net asset value is available on www.jupiteram.com. Sweden: Jupiter Asset Management International S.A., Nordic branch, 4th Floor, Strandvagen 7A, 114 56 Stockholm, Sweden; Switzerland: Copies of the Memorandum and Articles of Association, the Prospectus, KIIDs and the annual and semi-annual reports of the Company may be obtained free of charge from the Company’s representative and paying agent in Switzerland, BNP Paribas Securities Services, Paris, Succursale de Zurich, whose registered office is at Selnaustrasse 16, 8002 Zurich, Switzerland; United Kingdom: Jupiter Asset Management Limited (the Investment Manager), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ, United Kingdom, authorised and regulated by the Financial Conduct Authority. Issued by The Jupiter Global Fund and/or Jupiter Asset Management International S.A. (JAMI, the Management Company), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of the Company or JAMI. 24448