James Gard: Welcome to Morningstar. Today I am with fixed income analyst, Elbie Louw. Elbie, you've recently upgraded the people pillar rating for two BlackRock Emerging Market Debt funds. Can you tell us a bit about the background behind this decision, please?
Elbie Louw: Hi James. Thanks for having me. Yes, in January 2022, we saw some upheaval in the sea when the portfolio manager on both of these strategies, Sergio Trigo Paz, stepped away from these strategies, as well as his role as head of the Emerging Market Debt team. This team then joined forces with BlackRock's emerging markets crossover team. This combined team was then further led from that point on by Amer Bisat, who previously led the emerging markets crossover team. This team then stood at a healthy number of 22 members. Now that kind of upheaval often causes a level of uncertainty and that was reflected in our people pillar rating of average.
Gard: I see. So, to me, a 22-member team seems quite large, but you say this is a strength here and a reason why you've upgraded the people rating. So, can you tell us a bit more about the team dynamic there and the key personnel?
Louw: Yes, there's a number of factors that contributed to our upgrading the people pillar rating. So, first of all, we've seen that the long-time portfolio managers that's been present at these strategies for more than a decade, they are still with the strategies. On the Hard Currency strategy, emerging markets bonds, there is Michel Aubenas, and on the Local Currency strategy there is Laurent Develay. What we've also seen is that given the now large size, which you rightly flagged, of 22 members, they are able to spread their research across a larger cohort of analysts. What we've also seen is that there hasn't been an uptick in turnover, which we also view positively. And lastly, we've seen that Amer Bisat has started to contribute to the investment process as well as the discussions which further enhances the expertise in this team.
Gard: I see. So, let's talk about performance here. Over the last two years, how the fund has done, and I believe that Latin America exposure has helped improving performance.
Louw: Well, you're right, both of these strategies had really strong performances in 2022 as well as in 2023. If we first focus on the Hard Currency strategy under the leadership of Aubenas, in 2023, that strategy managed to outperform its benchmark by roughly 600 basis points gross of fees and it also beat roughly 90% of peers in its Morningstar category. Roughly half of that outperformance came from recovery in bonds in Venezuela, but that's a position that really (stagnated) in 2018 and in 2019. And then we also saw strong performance from the team's exposure to Argentina, like you mentioned, Latin America, and we also saw that the strategy also benefited from strong duration management by the team.
Gard: Sure, that makes sense. So, what about the Local Currency Fund then?
Louw: Similarly, that had strong performances in 2023, also beating roughly 90% of peers in their Morningstar category and outperforming their benchmark by roughly 400 basis points gross of fees. At this strategy, Latin America again played a role with their team's overweights to Colombia and Brazil benefiting with strategy on the back of monetary policy easing. Their underweight stance to Turkey in light of really high inflation there was a further contributor and then there was also small trades positioning that further benefited the strategy.
Gard: Great. So, these strategies look like ones you should keep an eye on for the future then for investors. Thanks very much for your insights today, Elbie. We look forward to you joining us in the studio again soon. So, thank you very much.
