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Eric Cheung, Oreana Financial Services
There are few emerging market bond funds with explicit short duration mandates available to retail investors.
“Their relative scarcity makes them an interesting alternative for investors who require liquidity, enhanced yields and diversification,” according to Eric Cheung, investment strategist at Oreana Financial Services.
Indeed, plunging investment grade bond yields and historically expensive corporate sub-investment grade yields last year, and volatility across asset classes in 2018 meant that the search for uncorrelated income-earning assets became even more urgent than usual.
As Cheung pointed out, emerging market bonds with durations of one-to-two years have less than 0.5 correlation with the MSCI World Index and with the Barclays Bloomberg Global Aggregate Bond Index, the two bellwether indices for global equities and fixed income markets respectively.
“The ‘pull-to-par’ for short duration bonds curtails their volatility, and the incremental yield offered by emerging market credits, means that funds which invest in bonds with both features typically generated attractive risk-adjusted returns,” said Cheung.
FSA asked Cheung to compare two emerging markets short duration bond products: the Axa World Funds Emerging Markets Short Duration Bonds Fund and the JGF-Jupiter Global Emerging Markets Short Duration Bond Fund.