UK hedge fund manager Man GLG has completed its new emerging-market debt team with the addition of five executives, as it looks to negotiate bond market volatility after Britain’s vote to leave the European Union.
Guillermo Osses, who started as head of EM debt strategies in January to build the business, explained why he remained long-term positive on EM currencies but has further reduced his already small exposure to Asian bonds since the UK ‘Brexit’ referendum on June 23.
Man GLG was already long EM currencies going into the referendum, he told AsianInvestor. Following the vote, it reduced European exposure and raised its allocation to Latin American currencies, given that they would be less exposed to the ensuing volatility.
However, the team’s exposure to Asian debt remains low and in fact has fallen further since June 23, as it has shorted certain currencies to reduce portfolio volatility. Osses retains the view he expressed to AsianInvestor in February – that Asian bonds are expensive, even allowing for the fact that credit quality in Asia tends to be better than in other EMs.
“It’s not that we have a negative outlook on the returns of Asian currencies, but we feel they are currently more expensive than others,” he noted. “They have suffered a lot less than those in Latin America and Europe between 2012 and now, and don’t currently offer such strong yields.”
Yields for the JP Morgan Emerging Markets Bond Indices for Asia, Europe, Latin America and Africa were as of July 13, respectively, 3.7%, 4.24%, 6.49% and 6.18%.
Osses’ team does have exposure to Indonesian credit and overweights it from time to time, but generally would prefer to allocate to Asian government debt rather than corporate bonds. But the bulk of exposure is centred on higher-quality Latin American bonds, as well as South Africa and Turkey.
Meanwhile, an interesting trend has emerged since the referendum, noted Osses: local-currency debt has been outperforming hard-currency (dollar-denominated) debt. The GBI-EM DIV local bond index has gained 4.7% since close on June 25, while the EMBI global external debt index has risen 3.5%. This is despite the fact that the fall in US yields was strongly supportive of hard-currency debt, added Osses.
Looking ahead, he said he believed EM currencies would continue to outperform external debt, as they have for most of this year, and so continue to drive bond markets.
One post-Brexit trend that particularly surprised Osses was the speed with which, after EM credit spreads widened and treasury yields fell on the outcome of the vote, those spreads tightened again and flows returned. In fact, he noted, spreads continued to tighten from June 27 and EM hard-currency bond prices only then fell again on Tuesday (July 12).
Completing the team
With regard to Osses’ quintet of hires, four are based in New York and one is in London. Man GLG declined to provide details of when the new hires started in their roles, apart from to say the latest additions joined this month. The dates listed below were stated on the individuals’ LinkedIn pages.
Phil Yuhn joined as a portfolio manager in New York. He was previously a PM at American Century Investments and before that worked alongside Osses at HSBC Global Asset Management.
Jose Wynne came on board in April as a PM in New York from Barclays, where he was head of FX research. Before that, he worked on the North America FX strategy team, as well as spending time as a senior EM strategist.
Lisa Chua joined this month as a portfolio manager based in New York. She previously worked alongside Osses as as PM on the EM debt team at HSBC Global AM in the US.
Ehsan Bashi has been hired as a portfolio engineer based in New York. He was previously a manager at KPMG, advising clients on risk management-related matters. He joined KPMG from Societe Generale, prior to which he worked at Pimco.
Maria do Carmo Cal joined as a product specialist in London from Banco Itaú BBA International, where she was head of capital markets. Prior to that, she led the bank’s fixed income division.