Emerging Market Hard Currency Bond Fund

Emerging Market Hard Currency Bond Fund: High Income from a Diversified Global Fixed Income Portfolio

Emerging market hard currency bonds — USD-denominated debt issued by governments and corporations in developing economies — offer one of the most compelling income propositions in the global fixed income universe. By borrowing in US dollars rather than their local currencies, EM issuers provide investors with a route to the higher yields that reflect developing-market credit risk, without the volatility of local currency exposure.

This UCITS fund targets a 7–9% annual income yield from a diversified portfolio of 80+ EM issuers across 30+ countries.

Why Hard Currency EM Bonds

The EM bond universe divides into two broad categories: hard currency bonds (denominated in USD or EUR, mostly USD) and local currency bonds (denominated in the issuer's domestic currency). The two categories carry very different risk and return profiles.

Local currency EM bonds offer potentially high returns but embed substantial currency risk — the investor's return in USD terms depends not only on the bond's coupon but on whether the local currency appreciates or depreciates against the dollar. Many locally-denominated EM bonds have delivered sharp losses to USD investors when EM currencies have weakened.

Hard currency bonds eliminate this dimension of risk. Because the bond is denominated and repaid in USD, the investor's USD return depends only on the creditworthiness of the issuer and the prevailing USD interest rate environment — not on the fortunes of the Nigerian naira, Ghanaian cedi, or Indonesian rupiah.

Portfolio Construction

The fund invests across the EM sovereign and corporate bond universe with the following parameters:

Geographic diversification: The portfolio spans 30+ countries across Latin America, Sub-Saharan Africa, the Middle East, Eastern Europe, and Asia Pacific. No single country represents more than 10% of the portfolio.

Issuer mix: Approximately 60% of the portfolio is invested in EM sovereign government bonds, with 40% in EM corporate bonds. Corporate bond positions focus on state-owned enterprises and large domestically-important companies with strong governmental support.

Credit quality range: The fund invests across the credit quality spectrum from investment grade (BBB-/Baa3 and above) to high-yield and sub-investment grade. The higher-yielding sub-investment grade portion of the portfolio drives the 7–9% target yield. The fund does not invest in distressed debt (bonds already in default or trading at distressed levels).

Duration management: The portfolio maintains a moderate average duration of 4–6 years, reducing interest rate sensitivity relative to longer-duration EM bond funds.

Active Management and Default Risk Mitigation

EM bond investing requires deep country-specific knowledge and active credit monitoring. The fund is actively managed by a specialist EM fixed income team with on-the-ground relationships across the regions in which the fund invests. The investment process includes:

• Sovereign credit analysis incorporating political risk, fiscal trajectory, external debt sustainability, and IMF programme engagement
• Corporate credit analysis with a focus on earnings stability, currency mismatch between revenues and debt, and state support likelihood
• Ongoing portfolio monitoring with pre-defined credit trigger thresholds for position reduction or exit

Income Distributions

The fund targets a 7–9% annual income yield distributed quarterly to investors. The actual yield in any quarter may differ from this target depending on the composition of the portfolio, prevailing prices, and any defaults or restructurings. The yield quoted is based on current portfolio yields and is not guaranteed.

Risk Considerations

Credit and default risk: EM bond issuers — both sovereign governments and corporate entities — can and do default on their obligations. When a sovereign or corporate defaults, bondholders typically recover a fraction of their investment through restructuring. The fund's diversification across 80+ issuers reduces the impact of any single default, but a wave of EM sovereign defaults (as has occurred during past EM debt crises) could result in significant capital losses.

Interest rate risk: USD interest rate movements affect the market value of the fund's holdings. Rising US rates reduce bond prices; the fund's moderate duration limits but does not eliminate this sensitivity.

Liquidity risk: While the fund offers daily UCITS liquidity, the underlying EM bond market can become illiquid in risk-off periods. If many investors redeem simultaneously, the fund may face selling pressure at unfavourable prices.

Political and geopolitical risk: Sovereign bond performance is linked to political stability, governance quality, and geopolitical developments in the issuing countries. These factors are inherently difficult to predict.

Suitability

This fund is appropriate for income-seeking investors willing to accept emerging market credit risk in exchange for a higher income yield than investment grade bonds provide. It requires a minimum three-year investment horizon and tolerance for mark-to-market volatility. Not appropriate as a capital-preservation vehicle. Suitable for sophisticated investors and retail investors meeting the minimum investment threshold.

How to Invest

Contact our investment team to receive the fund prospectus, KIID, and current yield data. The fund is available through most major international custody platforms. Minimum investment is $25,000. Quarterly distributions can be paid to any international bank account.

Important: Capital is at risk. The target income yield is not guaranteed and may not be achieved; income can fall and emerging market issuers can default. Past performance is not a guarantee of future returns. This is for information purposes only and does not constitute a personal recommendation. Seek independent financial advice before investing. This fund illustrates the type of emerging market bond opportunity Global Investments advises on — it is not a live investment offer.