The Pictet TR-Sirius fund will be offered to accredited investors in Singapore and professional investors in Hong Kong among other jurisdictions.
The strategy will be offered to external investors for the first time, according to a spokeswoman. For the past three years, it has been offered to Pictet wealth clients only and managed internally from London by Ketan Gada, head of total return emerging markets fixed income, who is supported by Thibaut Nocella and Rav Singh, she told FSA.
The strategy is described as “liquid global macro emerging market long-short fixed income”.
Basically, it comprises a highly-liquid portfolio which invests in a wide range of EM sovereign bonds, rates and foreign exchange instruments. The fund has no directional bias or benchmark constraints and takes long and short positions through the use of derivatives under Ucits rules.
“While the fund is unconstrained and not managed to a benchmark, the team do actively manage the ex-ante [that is, forecast] beta of the fund to EM assets within a defined range, with the aim of remaining uncorrelated and helping protect the downside by ensuring that we are not held hostage to broad EM directionality or beta,” said the spokeswoman.
The fund only invests in sovereign and quasi-sovereign issuers, without a targeted average credit rating or yield-to-maturity level, although it has + / – five year duration limit.
Moreover, “we do not manage the fund against a benchmark [because it] would restrict our ability to generate uncorrelated alpha,” she added.
Nevertheless, the managers aim to exceed the Libor overnight rate by six-to-eight percentage points, with an expected annual volatility of 4-6% over a three-to-five year horizon.
Emerging market bond funds have generated average total returns of 8.30% since the start of the year, outperforming global high yield (8.17%), Asia-Pacific (7.44%) and global fixed income funds (6.74%), according to FE Analytics data.
But over a three-year period they have underperformed global high yield bond funds, are more volatile and have suffered larger drawdowns.
Comparative data of fixed income fund sector averages
|
Number of funds* |
3-year cumulative return | Annualised return | Annualised volatility |
Maximum drawdown** |
|
| Global high yield |
25 |
12.57% | 3.98% | 3.54% |
-7.22% |
| Emerging markets |
69 |
7.97% | 2.33% | 5.08% |
-10.72% |
| Asia-Pacific fixed income | 48 |
7.20% |
2.29% | 2.60% |
-5.30% |
| Global fixed income |
86 |
6.43% | 1.69% | 2.95% |
-5.37% |
Source: FE Analytics. Data in US dollars, 8 August 2016 – 8 August 2019. *Authorised for sale in Hong Kong and/or Singapore; **peak-to-trough decline in the funds’ value.
According to FE Analytics, only two other EM bond products have been launched to Hong Kong and Singapore investors so far this year: the $25m Goldman Sachs Emerging Markets Short Duration Bond Portfolio Fund and the M&G Emerging Markets Corporate ESG Bond Fund, which is still in its launch period.
The Pictet-Sirius fund has a “strategy capacity of $1.5bn”, said the spokeswoman.
The managers believe that their “long/short approach to emerging markets, which targets dispersion and seeks to generate uncorrelated alpha while minimising drawdown risks for investors is an attractive proposition for investors,” she said.
The lack of correlation to traditional asset classes “can perform the role of a complement to their long-biased exposure to EM or simply as a separate, non-directional, alpha stream,” she added.
“This strategy will offer investors participation in the advantages of emerging markets with lower volatility,” said Pictet’s fixed income CIO, Raymond Sagayam, in a statement.
As at June 2019, Geneva-headquartered Pictet managed $190bn in assets, invested in equity and bond markets worldwide, according to the statement.
Comparative cumulative returns of fixed income fund categories
