Insights | 01 June 2022

No Stone Unturned

Exploiting the full breadth of opportunity across emerging market debt

Executive Summary

As an alpha manager with a global opportunity set, GMO is well equipped to create variations across the spectrum from single-benchmark, through blended-benchmark, and right across to total return solutions. Our skills are deep in sovereign and quasi-sovereign credit (in hard and local currency); as well as in managing local currency and interest rate exposures. With U.S. interest rates rising and the U.S. dollar (USD) continuing to pose challenges to holding long-only emerging markets currency (EMFX) exposure, now could be the appropriate time to consider a new approach to emerging debt investment. A total return solution can eliminate systemic exposure to U.S. duration and EMFX, while a blended solution can be tailored to capture only the amount of those beta exposures that is considered desirable. In terms of expected return, a typical target would be 150-200 bps of net alpha relative to standard benchmarks, including blended ones, or cash + 7-9% for total return solutions.

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