Q&A WITH PETER MARBER, FUND MANAGER
For over 30 years you have been actively investing in emerging markets and you’re a recognized authority on emerging markets (EM) economies. Said that, what are your core convictions we can see reflected into the Aperture New World Opportunities’ portfolio?
In my opinion, there is a structural arbitrage opportunity in EM debt for a few reasons. First, the sovereign credit ceiling methodology used by rating agencies means that corporate credits generally cannot be rated higher than their home countries, and so you can find corporates that are artificially rated lower than they otherwise “should” be. Second, most investors believe that companies and countries in Emerging Markets default more often than they do in advanced economies. Surprisingly, they do not. In short, EM US dollar bonds offers structurally higher spreads for the same ratings and lower default rates than comparable credit from the US or Europe.
This credit opportunity is the core strategy of the Aperture New World Opportunities Fund. We build a short-duration, high yielding, US dollar bond portfolio with a target average rating near investment grade. In addition, we overlay a variety of opportunist investments – both long and short – while keeping overall portfolio volatility very low, similar to other short-term bond funds.
In your opinion, what is the main element that differentiates your strategy from competitors?
Above all, we focus on capital preservation, controlling volatility and drawdowns. Most competitors focus on long-duration EM bonds (sometime with benchmarks that have 2-3x our duration) while we focus on shorter-term instruments with less price risk. Interestingly, our shorter-duration benchmark has posted historic returns close to these longer duration strategies but with less volatility and drawdown.
Moreover, our strategy allows us to use derivatives to invest in and hedge a variety of risks and create an “all-weather” fund, one that tries to make money both in up and down markets – also different than our competitors.
Given low-interest rates globally, this strategy is very attractive today. Our benchmark’s average rating is BBB- yielding roughly 4.47% to maturity.
The Aperture New World Opportunities Fund has now reached more than USD 600MM* AuM. How do you position the portfolio today and what have been the main contributors of the recent performance?
Our portfolio core Fundamental credit sub-strategy contributed ~80% of the latest monthly performance, with Asian bonds contributing to a large part of the earnings, along with trading gains from a full new issues calendar.
Among our three sub-strategies within the portfolio (Technical, Relative Value and Special Situations), this month it’s worth mentioning Relative Value’s contribution. Our market neutral long/short mix of 20 technology and consumer companies in Latin America and Asia contributed approximately 20 bps. for January 2020, with a net exposure of just 0.21% of the entire UCITS sub-Fund.
In terms of geographic exposures we mantain our underweight position in China and South Korea, which should insulate the fund from global market concerns around an Asian slowdown due to Coronavirus. Overall, it is important to mention that amid all the nervous headlines in recent months, at end of January our rolling 30-day volatility as was only 1.05% and the fund’s 1 month Var (99% confidence interval) was 0.99 – among the lowest in the emerging stock and bond fund universe. For investors interested in attractive returns with very little principal risk, our strategy is worth investigating.
*Source: Aperture investors as at end of January 2020. This information are referring to the USD share class. Past performance is not a guarantee of, and not necessarily indicative of, future results. Investment return and principal value may fluctuate so you may have a gain or a loss when the shares are sold
For over 30 years, Peter has invested in emerging markets and built businesses at firms including HSBC, Wasserstein & Co., and Loomis, Sayles & Company. An award winning investor and globally recognized authority on EM economies, he has passed along his curiosity, knowledge and passion as a professor at NYU, Johns Hopkins, Harvard, and Columbia. He has published 6 books and dozens of articles on international economics. Peter earned his B.A. at Johns Hopkins, his M.I.A. from Columbia, and his Ph.D from the University of Cambridge.
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