Emerging Markets Blended Debt Strategy

The GMO Emerging Markets Blended Debt Strategy integrates all of the elements from GMO’s hard and local benchmarked strategies, enhanced by disciplined asset allocation timing and aiming to deliver total return in excess of any combination of hard and local currency benchmarks. The Strategy invests broadly across emerging market debt, including securities, derivatives, and private instruments, in both hard and local currencies, covering a wide range of issuers and credit qualities, though the portfolio’s overall duration, currency, country, and credit quality are managed mindful of the policy benchmark. By introducing a blended currency benchmark, the Strategy allows for larger USD/EMFX allocation tilts, informed by valuation signals published in GMO’s Quarterly Valuation Update, compared to the narrower deviations of either the hard-currency or local-currency benchmarked strategies.

Apart from the timing element, the Strategy emphasizes “arbitrage-like” opportunities over country, currency, or duration bets. Given the wide range in credit qualities in the referenced benchmark, investment grade to default, the team has developed expertise in managing performing, distressed, and defaulted issuers, including workout processes as needed. 

In corporate debt, the focus is on quasi-sovereign entities, which offer a more attractive risk/reward profile than private corporates. In local markets, the team employs quantitative techniques to actively manage exposures in emerging local currency and interest rate markets. In addition, the Strategy utilizes a robust framework for investing in frontier local markets, many of which are not part of standard benchmarks.