HEAD-TO-HEAD: Neuberger Berman vs Pictet

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Both the NB and Pictet fund belong to the global emerging market bond category and have the JP Morgan EMBI Global Diversified Composite Index as their benchmark. But the two funds are very different.

The main difference is one does not invest in developed markets and local currencies while the other one has the flexibility to do so.

The NB fund is a pure hard currency player, which means it does not have any local currency debt, according to Faassen. It also does not invest in developed markets.

Although the fund has a benchmark index, it can invest up to 15% into emerging market corporates, which are not included in the index, he noted.

The Pictet fund is not a pure emerging market bond player as it can invest up to 30% in developed markets as well as local currency markets. This potentially provides downside protection in case of market stress.

“The Pictet fund has more leeway than the NB fund,” Faassen said. “It wouldn’t surprise me if I find some US treasuries there or some Swiss franc positions there like we’ve seen in the past.”

The investment process also differs.

Because the NB fund is confined to the hard currency emerging market debt space, its focus is more on country analysis, Faassen said.

The process starts with a monthly top-down evaluation followed by a bottom-up country analysis in which both quantitative and qualitative factors are taken into account, with an emphasis on quant factors. For bond selection, the yield curve, liquidity and relative spread development are considered.

In comparison, the Pictet fund focuses on global risk and global economic cycles. It also makes use of a risk aversion index. Faassen believes the process fits well with their approach, and is especially helpful in managing downside risk.

Differences in investment strategies are also reflected in the country allocation:

Source: Neuberger Berman, Pictet (as of 31 October 2017)

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