Quarterly EM Debt Update
Overview
The GMO Emerging Country Local Debt Strategy is GMO’s flagship local currency benchmarked strategy, with an objective of total return in excess of the J.P. Morgan Government Bond Index - Emerging Markets Global Diversified (GBI-EMGD). Since its inception in 2008, the Strategy has employed a broad opportunity set, investing across all forms of emerging market debt, including securities, derivatives, and private instruments, in both local and hard currencies. Local currency debt typically targets a narrower, higher-credit quality segment than hard currency debt, with the benchmark comprising 19 countries of investment-grade average quality. Although the Strategy has a wide investment universe, the portfolio’s overall duration, currency, country, and credit quality are managed mindful of GBI-EMGD.
The Strategy’s core focus is on “arbitrage-like” opportunities, seeking excess return by taking on credit risk without additional default risk. This is complemented by disciplined, risk-controlled quantitative techniques to actively manage exposures in emerging local currency and interest rate markets. Because the local currency benchmark is higher quality, default risk is generally not a material concern. In corporate debt, the focus is on quasi-sovereign entities, which offer a more attractive risk/reward profile than private corporates.
In addition, the Strategy employs a robust framework for investing in frontier local markets, many of which are not included in standard benchmarks.
Facts
Performance
Documents
Literature
| Fact Sheet | Download | |
| GIPS® Composite Report | Download | |
| Composite Descriptions | Download | |
| Download All | Download |
Risks
Risks associated with investing in the Strategy may include: (1) Non-U.S. Investment Risk: the market prices of many non-U.S. securities (particularly of companies tied economically to emerging countries) fluctuate more than those of U.S. securities. Many non-U.S. markets (particularly emerging markets) are less stable, smaller, less liquid, and less regulated than U.S. markets, and the cost of trading in those markets often is higher than it is in U.S. markets; (2) Focused Investment Risk: the Fund invests its assets in the securities of a limited number of issuers, and a decline in the market price of a particular security held by the Fund may affect the Fund's performance more than if the Fund invested in the securities of a larger number of issuers; and (3) Currency Risk: fluctuations in exchange rates can adversely affect the market value of the Fund's non-U.S. currency holdings and investments denominated in non-U.S. currencies. This is not a complete list of risks associated with investing in the Strategy. Please contact GMO for more information.