When we first launched the WisdomTree Emerging Markets Local Debt Fund (ELD) eight years ago, we opted for a structured approach to portfolio management that was anchored by macro fundamentals but dynamic enough to evolve with changes in the market. Recently, we changed the way weights are assigned across ELD’s tiering structure.
After a phenomenal 2017, the last eight months have been painful for emerging market investors. However, despite this period of negative performance, we believe this year’s downdraft could lead to opportunity.
As geopolitics shakes investor confidence, emerging market assets have come under pressure. In our view, this move could present a unique buying opportunity for investors looking to manage their interest rate risk while enhancing the income profile of their core bond portfolio.
Following the U.S. election, most of the attention in the fixed income arena seemed to be paid to rate developments here at home, as bond investors found it increasingly difficult not to focus on the twin pillars of domestic policy (monetary and fiscal) creating a more challenging domestic fixed income setting in 2017. Obviously, such policy considerations can have global ramifications as well, so we thought it would be useful to provide some updated thoughts on what has been “emerging” thus far.
Over the last 11 years, the three-month investment window from February 1 through April 30 has, on average, produced the strongest returns for EM assets, in particular EM local debt and EM equities, and generated the fewest and the smallest shortfalls.
Jeremy J Siegel
Senior Investment Strategy Advisor
CEO of WisdomTree
Jeremy Schwartz, CFA
Executive Vice President, Global Head of Research
Christopher Gannatti, CFA
Head of Research, Europe
Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. In January of 2014, he was promoted to Associate Director of Research where he was responsible to lead different groups of analysts and strategists within the broader Research team at WisdomTree. In February of 2018, Christopher was promoted to Head of Research, Europe, where he will be based out of WisdomTree’s London office and will be responsible for the full WisdomTree research effort within the European market, as well as supporting the UCITs platform globally. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant. He received his MBA in Quantitative Finance, Accounting, and Economics from NYU’s Stern School of Business in 2010, and he received his bachelor’s degree from Colgate University in Economics in 2006. Christopher is a holder of the Chartered Financial Analyst designation.
Head of Fixed Income Strategy
Tripp Zimmerman, CFA
Head of Fixed Income & Currency
Associate Director, Asset Allocation and Modern Alpha
Head of Capital Markets
Associate Director of Capital Markets
Head of Europe
Joseph Tenaglia, CFA
Associate Director, Asset Allocation
Kara Marciscano, CFA
Jianing Wu joined WisdomTree as a Research Analyst in October 2018. She is responsible for analyzing market trends and helping support WisdomTree’s research efforts. Previously, Jianing completed internships and projects at Geode Capital, Starwint Capital, and Invesco Great Wall Fund Management with a focus in quantitative research. Jianing received her M.S in Finance from the Massachusetts Institute of Technology. She graduated with honors from Boston College with degrees in Mathematics and Philosophy.
Jeff Weniger, CFA
Director, Asset Allocation
Alejandro Saltiel, CFA
Associate Director of Modern Alpha
Alejandro Saltiel joined WisdomTree as a Quantitative Research Analyst in May 2017. He is responsible for quantitative research on WisdomTree’s products and global equity markets. Prior to joining WisdomTree, Alejandro worked at HSBC Asset Management’s Mexico City office as Portfolio Manager for multi-asset mutual funds. He started his career working at a boutique hedge fund that specialized on trading options on sector-levered ETFs. Alejandro received his Master’s in Financial Engineering degree from Columbia University in 2017 and a Bachelor’s in Engineering degree from the Instituto Tecnológico Autónomo de México (ITAM) in 2010. He is a holder of the Chartered Financial Analyst designation.
Matt Wagner, CFA
Modern Alpha Analyst
Matt Wagner joined WisdomTree in May 2017 as a member of the Research team. He is responsible for research on WisdomTree’s products and communicating the firm’s views on the markets. Matt started his career at Morgan Stanley, working as an analyst in Treasury Capital Markets from 2015 to 2017 where he focused on unsecured funding planning, execution and risk management. Matt graduated from Boston College in 2015 with a B.A. in International Studies with a concentration in Economics. Matt is a holder of the Chartered Financial Analyst designation.
While there is no question that emerging market currencies can be volatile and difficult to predict, the bonds themselves could have some attractive valuation characteristics. So how do we capitalize on this potential?
While emerging market equities receive a lot of attention, a large amount of assets also follow emerging market local debt. J.P. Morgan estimates that approximately $200 billion is tied to its Government Bond Index-Emerging Markets (GBI-EM) Index series.
While we remain firm believers in the long-term potential of emerging markets (EM), the past several years have been difficult due to increasing volatility and secular headwinds from a strong U.S. dollar. In our view, a bullish dollar position against a broad-based basket of developed and emerging market currencies provides a powerful option for managing currency risk in a portfolio of emerging market assets.
In part two of our discussion, we focus on the impact of recent changes in Federal Reserve (Fed) policy on locally-denominated fixed income across emerging markets (EM).