DoubleLine Bets on Corporate Debt in Emerging Markets

DoubleLine Capital LP is making a long-term wager on developing-nation corporate debt.

Luz Padilla, who oversees about $3.8 billion as director of emerging-markets fixed income, said in a report on the Los Angeles-based asset manager’s website that corporate bond returns will exceed gains in government and local-currency securities over the next 10 years. Her DoubleLine Emerging Markets Fixed Income Bond Fund has gained 11.2 percent over the past year, beating 96 percent of peers, data compiled by Bloomberg show.

“The story of emerging-market debt as a secular trend of improving creditworthiness, which began and persists in the sovereign sector, will primarily unfold in the dollar-denominated corporate sector over the next decade,” according to the report co-authored by Ignacio Sosa, director of product solutions. “Investors should avoid emerging-market strategies that focus primarily on dollar-denominated sovereign bonds or local-currency bonds over a full market cycle.”

Outstanding corporate dollar debt from developing nations has more than doubled in the past four years to about $1.3 trillion. Emerging-market companies have sold almost $200 billion of dollar bonds this year, on pace to surpass the record $295 billion issued in 2012.

Bond Returns

Emerging-market corporate bonds have returned an average 9 percent over the past year. That exceeded the 5.01 percent gain for local-currency debt and is below the 11.2 percent return of dollar-denominated government securities, Bloomberg index data show. They pay an average 2.8 percentage points more than similar-maturity U.S. Treasuries, about 0.22 percentage points more than dollar-denominated sovereign bonds, according to data compiled by JPMorgan Chase & Co.

Bets on Brazilian construction company OAS SA, Chilean supermarket owner Cencosud SA and the Bogota-based banking group Grupo Aval Acciones y Valores SA have led gains this year for Padilla’s fund, according to its most recent filings.

Investment grade companies make up about two-thirds of JPMorgan’s CEMBI broad diversified index, an industry benchmark, with junk-rated issuers comprising the other third.

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