UOB Asset Management has launched the first Singapore registered bond fund investing in global emerging market debt called the United Global Emerging Market Portfolios or GEMs for short.
Author : Bharathi Rajan
Untitled Document A CHANCE TO INVEST IN GLOBAL EMERGING MARKET BONDS
(Fundsupermart.com) - The United Global Emerging Market Portfolios or GEMs for short, is the first Singapore-registered bond fund to invest in Emerging Market debt and debt instruments. The open-ended fund is a tie-up between UOB Asset Management and UK-based sub-manager Ashmore Investment Management Ltd. Ashmore is an Emerging Market debt specialist and currently manages the Emerging Markets Liquid Investment Portfolio (EMLIP) in UK, the umbrella fund upon which GEMs is based.
About three-quarters of the fund will be invested in government bonds issued by developing countries and the rest will be invested in corporate bonds. The fund's holdings will be spread out evenly across Africa, the Middle East, Asia, Latin America and the Caribbean, and Europe, says Ashmore Managing Director Mark Coombs. He adds GEMs will be actively managed with an emphasis on macro-economic factors affecting global Emerging Markets.
THE CASE FOR EMERGING MARKET BONDS
Speaking at a media conference, Coombs says global Emerging Market debt is worth US$1.2 trillion dollars, and is increasingly considered an asset class separate from global bonds. He gave the following reasons why Emerging Market bonds should be a part of a well-diversified investment portfolio.
Offers investors diversification as Emerging Market bonds have low correlation (do not appreciate or depreciate in tandem) to other markets and global bonds
More efficient in capturing earlier stages of economic growth in emerging economies
Highly liquid and transparent global emerging debt market enables more active portfolio management
Quicker and clearer economic recovery cycle in emerging economies leads to better investment opportunities
Emerging Market debt offers purer exposure to country risk than other asset classes
Capitalises on the improving credit situation in developing countries.
Higher absolute returns than Emerging Market equity in the last five years to the end of May 2001 (78.44% for the JP Morgan EMBI Global Constrained Index versus -30.26% for the MSCI Emerging Markets Free Index)
Coombs adds that though Emerging Markets have been closely associated with risk, their bonds aren't necessarily more volatile than equities. What's more, he says they can provide superior returns. To illustrate the point, he shows the following table comparing the average risk/return per year, of his Emerging Markets Liquid Investment Portfolio (EMLIP) against the performances of some well-known indices.
Average Annual Performance of EMLIP And Other Indices As At 31 May 2001
MSCI World (%)
*MSCI EM (%)
Since launch of EMLIP
Since 5 years ago
Since 3 years ago
Source : UOB Asset Management Benchmarks : Straits Times Index (STI), MSCI Emerging Markets Free Index (MSCI EM),
POSITIVE OUTLOOK FOR EMERGING MARKET BONDS
While Coombs thinks it's always worthwhile to be invested in Emerging Market bonds, he believes that now is a particularly good time to gain exposure to this asset class. He says the following macro-economic developments indicate that the near-term outlook for Emerging Market bonds is positive.
Structural problems resulting from the Asian currency crisis are now being resolved.
European bond markets have shrunk due to economic integration; European pension funds are looking elsewhere for bond investments.
Major indices like the Lehman Universal Index have taken into account changes in the global bond market and have adjusted accordingly. Emerging Market sovereign debt is gaining greater prominence in such indexes.
Positive economic and political reforms across the developing world. For example, deregulation of key industries like transportation and oil, introduction of tight fiscal and monetary policies and stabilisation of exchange rates.
Coombs notes such developments mean the fund is in a good position to deliver solid returns. "Using the Ashmore Portfolio Framework, GEMs will be managed through active management, in-depth research market analysis and research. The Emerging Markets are experiencing increasing liquidity and transparency, which allows for more active portfolio management. These countries represent such a potential for growth from the mere fact that they make up 84% of the world's population and represent a US$ 1.4 trillion dollar bond market."
THE INVESTMENT TEAM
Ashmore Investment Management was established in 1992 and specialises in Emerging Markets. Its core portfolio team consists 11 key professionals with an average of 11 years of experience. It currently manages US$ 1 billion in Emerging Market debt instruments. The boutique firm recently bagged international accolades including a AA Fund Research Rating by Standard & Poor's Fund Services. The Emerging Markets Liquid Investment Portfolio was also ranked the "number one Emerging Markets fund" over a 5-year period by Lipper last year.
(The Fund is available in US and Singapore dollars; information below relates to Singapore dollar fund only) Launch Period - 2 July to 17 August 2001 Launch Price - 1 Singapore dollar per unit Minimum Initial Investment - 1,000 Singapore Dollars Minimum Subsequent Investment - 500Singapore Dollars Regular Savings Plan - a minimum of 100 Singapore dollars every month or 500 Singapore dollars quarterly Initial Sales Charge - up to 5% depending on distributor Annual Management Fee - 1.75%, maximum 2% Realisation Charge - currently nil, up to a maximum of 2% Annual Trustee Fee - currently 0.05%, up to a maximum of 0.20% Performance Fee - 25% of excess return above 12% compounded return Custodian Fee - a maximum 0.25% p.a and US$50 fee per transaction Discount - up to 1.75% (2 July - 17 August) depending on the amount invested, those investing before 27th July 2001 are entitled to Tangs Shopping vouchers; terms and conditions apply CPF Approved - No Complimentary Life Insurance of up to 125,000 Singapore dollars in the event of death or total and permanent disability
Sector Allocation as at 31 May 2001 (EMLIP-umbrella fund) 76.84% in Sovereign Debt Issues 23.16% in Corporate Issues
Regional Allocation as at 31 May 2001 (EMLIP-umbrella fund) 28.91% in Eastern and Middle Europe 27.56% in Latin America and the Caribbean 24.80% in Asia 18.73 in Africa and the Middle East
Country Allocation as at 31 May 2001 (EMLIP-umbrella fund) 26.61% in Others 16.83% in Russia 12.21% in South Korea 10.29% in Brazil 7.50% in Turkey 6.11% in Algeria 5.50% in Mexico 4.98% in Venezuela 3.69% in Nigeria 3.32% in Indonesia 2.95% in Bulgaria