ASI launches emerging market local currency debt strategy in Australia
Australian dollar product is intended to give investors access to meaningful risk premium in low-return environment
14 Aug 2019 | The Asset

Aberdeen Standard Investments (ASI) has launched a new emerging market local currency debt strategy for Australian investors.

The Australian dollar (AUD) product will build on ASI’s reputation as a provider of global emerging market investment solutions.

Aberdeen Standard Investments has been investing in emerging market debt (EMD) for more than 20 years and has over 40 dedicated investment professionals managing over US$13 billion in the asset class for clients worldwide.

Brett Diment, ASI’s head of global emerging market debt, says the new strategy was designed to give investors access to a meaningful risk premium in a low return environment at a time when many Australians were looking for new sources of investment income.

EMD provided higher yields than Australian and global developed-market bonds, while EM currencies were the cheapest they had been since before the 2008 global financial crisis, he says.

“In recent years, we have seen increasing demand for EMD from investors in Europe and the US as local yields have fallen to historic lows. We are now seeing rates fall to similar lows here in Australia and many investors are now looking for alternative ways to generate investment income.”

“While EMD has traditionally not been on the radar screen of many investors, the attractive relative yields have seen more local investors seeking to understand the asset class and gain exposure. Emerging market local currency debt is an investment grade asset – the index is rated BBB.”

“The new strategy has been designed to help optimize exposure for Australian investors. The vast majority of the portfolio is invested in government bonds helping to mitigate credit risk. Secondly, this is a local currency product and the traditional correlation between the AUD and EM currencies helps to further mitigate risk for Australian investors,” Diment says.

Brett Jollie, ASI’s managing director – Australia, said that exposure to EMD could enhance yield while providing diversification benefits and added that positive technical factors and an increasingly dovish US Federal Reserve should lead to larger flows into EMD in the next few years.

“As a global investment house, we are committed to offering a range of diversified solutions to help local investors. This launch is an example of our ability to offer professionally managed solutions that are not easily replicated directly in the local market.” 

“Whether it be investment solutions, retirement income, ESG or asset allocation, and advisory services, where possible, we want to work with local clients to deliver both local and global insights, research and solutions to meet their changing needs,” Jollie says.

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