Institutional Demand for Emerging Markets Corporate Debt – Q1 2018

Latest research from Investment Metrics shows that nearly 2.5 billion dollars were awarded to emerging market debt products in the first quarter of 2018. This marks the third consecutive quarter tax-exempt emerging market debt strategies have had positive asset flows. While the appetite by institutional investors has been increasing, there does not appear to be a consensus on the risk profile favored.

In the first quarter of 2018, 40% of the assets gained went to standard emerging markets debt portfolios (hard currency, local currency, or blended currency). Meanwhile, the other 60% of asset flows went to emerging markets corporate debt, presumably because of their favorable risk-adjusted performance in the near-term. The credit profiles show these winning corporate products having riskier portfolios based on their average credit ratings (BB). Despite the riskier credit metrics, these portfolios have provided a lower standard deviation against peers. In the risk-adjusted return scatter below, those products that are diamond shaped have gained assets in the first quarter of 2018; the color of the diamond associates with the type of emerging markets debt portfolio. Clearly, the corporate debt portfolios compare favorably to peers.

Source: Investment Metrics, InvestWorks, InterSec Research

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