HEAD-TO-HEAD: Neuberger Berman versus Pictet

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Investment approach

The Neuberger Berman Emerging Market Debt Hard Currency Fund and the Pictet Global Emerging Debt Fund have the same benchmark, the JPMorgan EMBI Global Diversified index, which includes dollar-denominated debt of emerging market government and quasi-sovereign issuers. Also, both can allocate up to 15% of their portfolio’s to emerging market corporate bonds.

However, there are differences.

“Neuberger Berman is slightly more of a ‘pure-play’ hard-currency emerging market debt fund,” according to Kirwin.

“The managers do not add any emerging market currency exposure to their portfolio, whether through locally denominated bonds or currency derivatives. The only non-dollar currency debt they will buy are bonds denominated in euros, which are not included in their benchmark — though this exposure within the fund is always hedged back to dollars,” she explained.

In contrast, the Pictet team “dabbles liberally in emerging market foreign exchange”.

In November 2020, for example, that fund’s portfolio had an exposure of roughly 20% in a basket of emerging market currencies, which the managers used to benefit from the rally in emerging market assets.

In terms of investment horizon, the Neuberger Berman team’s process could be described as more long-term and value-oriented.

“They are willing to sit out short-term periods of underperformance in order to see an investment thesis play out and have an average holding period for an investment of about 1.5 years,” said Kirwin.

“The Pictet team, on the other hand, has a more short-term investment horizon and operates in a much more tactical manner,” she said. They tend to implement trades that they think will outperform over the next three months, rather than the next 1.5 years.

They also operate with strict stop-loss policies and try to respond quickly if the market moves against them. For example, the team brought the fund’s EM currency exposure from 0% to -7% within a few days during March 2020’s COVID driven sell-off to limit losses.

Both portfolios are well-diversified, with the Neuberger Berman team maintaining a fairly diversified portfolio, with typical single country overweights in the 1%-3% range, according to Kirwin.

“However, it’s worth noting that the team is not afraid to take substantial positions in smaller, less liquid issuers,” she said.

For example, as of 30 June 2021, the fund held a 3.6% stake in Ivory Coast, which makes up just 0.37% of the benchmark and has a low credit rating of single-B.

The Pictet team has an even more diversified portfolio, with typical overweights or underweights closer to 1%-2%, and well below 1% for less liquid high-yield countries, according to Kirwin.

“You would never expect to see a position above 1% in an issuer such as the Ivory Coast in the Pictet fund,” she said.

Fund characteristics

Source: Fund factsheets, 30 June 2021

Top 10 holdings:

Source: Fund factsheets, 30 Jun 2021

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