There are plenty of asset classes that are conducive to active management. But emerging markets debt is arguably near the top of the list.
Think about the various scenarios in which funds such as the Neuberger Berman Emerging Markets Debt Hard Currency ETF (NEMD ) can be more responsive to than passive rivals. Just a few of those scenarios are geopolitical events, credit defaults, interest rate fluctuations and currency volatility.
That’s not to say NEMD is a “perfect” ETF. But its status as an actively managed fund in a corner of the bond market that’s notoriously tough to navigate for standard indexes shouldn’t be diminished. In fact, it’s a source of allure when emerging markets bonds are performing well while sporting attractive yields and valuations.
NEMD the Way to Play EM Debt
A key reason NEMD’s active wrapper offers advisors and investors utility is not all developing economies are cut from the same fiscal cloth. Some are sturdy on that front. Others, such as Argentina, have checkered histories of default. It’s possible with a passive fund addressing this asset class some dubious characters enter the underlying index. But NEMD can take steps to avoid that scenario.
Some large developing economies “have largely been able to expand borrowing through increased local issuance to local [investors. Other emerging and frontier markets] have needed to rely on shorter maturity financing from domestic banks and the central bank, as well as foreign currency debt,” noted the International Monetary Fund (IMF).
Some emerging markets are more resilient than others to internal and external economic shocks. An active strategy like NEMD can more readily identify the haves and have-nots. And that’s a good thing for investors.
It’s often advantageous to be aligned with markets with deep pools of investors capable of absorbing new issuance. However, not all countries have that advantage.
“New empirical analysis shows that countries with deeper local investor bases have indeed experienced greater resilience to global shocks over the last 15 years. However, more domestic buyers are not always [better. The] chapter also examines risks that may stem from an overreliance on a narrow group of domestic investors, especially if driven by financial repression,” added the IMF.
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