Emerging market debt benefited from quantitative easing and yield hungry investors flocked to the asset class
For investors seeking bond investments some have turned to emerging markets as an alternative option. Emerging market debt benefited from quantitative easing and yield hungry investors flocked to the asset class. However, since 2013 performance has lagged and outflows from the asset class reached unprecedented levels in 2016 (source FT.com).
There is a strong argument that the worse is priced into the sector and therefore now could be the time to invest. There is no doubt that there are risks investing in this sector which include both currency and default. It is difficult for investors to find a manager with experience in this sector and furthermore choosing between local currency or hard currency fund. Each have their advantages and it is something that any investor has to research further.
One alternative is to turn to a blended solution. It means that an investor doesn’t need to select whether they choose hard or local currency because the manager makes that decision. It does mean that they won’t capture the full upside on whichever strategy is performing better but equally belended together it should outperform.