Fixed income is an essential part of any balanced portfolio. Bonds offer capital protection – as long as the issuer does not go under. While this is low risk in developed markets in emerging economies both the central banks and the corporate entities carry much lower credit ratings and a much higher risk of default.
In the bond market risk is rewarded with yield, and emerging market debt is no exception – hence the appeal.
Foreign investors do not always have easy access to local credit markets in emerging countries, there are sometimes capital restrictions for foreign investors, there may be withholding tax levied and there can be other legal and regulatory obstacles.
For those who want to outsource the allocation of the riskier parts of their portfolio there are plenty of global bond funds which will carefully pick the emerging market issuers worth the risk and adjust exposure as defaults threaten or currency complications loom.
We used the Fund Screener to identify three highly rated global bond funds which could be worth considering.
Invesco Bond
This Bronze Rated fund is an attractive proposition for global bond investors, said Morningstar analysts. Portfolio construction is driven by a proprietary product design tool which helps identify and size potential trades; it is augmented by the manager’s ability to combine the different strategies in a risk-controlled manner. The portfolio is well diversified across a range of alpha strategies.
Newton International Bond
This Bronze Rated fund has an experienced and stable management team and a thorough investment process which underpin analysts’ positive view on this global government bond fund. The investment process is top-down and starts with Newton’s established thematic framework, which looks to identify long-term trends that will drive global financial markets and economies.
This long-term, thematic view allows the manager to take very active positioning. One example of this is zero exposure to Japanese duration has been a long-term position in the fund.
Invesco Perpetual Global Bond
This is a good option for investors seeking exposure to global government bonds and currencies, with opportunistic exposure to credit say Morningstar analysts who have awarded it a Bronze Rating.
The fund provides exposure to global sovereign and corporate bonds, although the default is to be invested in sovereign bonds. The investment approach is active and Edwards will look to increase the corporate bond weighting in the fund as and when he feels valuations look attractive. The investment strategy is driven by macroeconomic analysis, credit analysis, and value assessment.
