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Nordea Pushes Further Into Emerging Markets With New Debt Fund

Updated on
  • Nordea’s EM team is betting on Ivory Coast and Mexican debt
  • Shorting Mexican peso on concern Trump will disrupt trade

Scandinavia’s largest bank wants a bigger chunk of emerging markets asset management.

Nordea Bank AB is adding a new emerging market debt fund, Nordea 1 Emerging Markets Total Return Fund, in November, according to Thede Ruest, head of emerging markets debt at Nordea Asset Management.

“The team is on a growth trajectory,” Ruest, who leads a group of 11, said in a phone interview Thursday. “We’re one of the well-resourced -- in terms of team staffing and organizational supportive infrastructure -- EMD teams in the Nordics.”

European banks are expanding asset management and other capital-light operations as they adjust to stricter regulations. Nordea’s multi-asset products have seen high inflows, making it one of the fastest growing asset managers in Europe in past years. It’s now looking to use the distribution network it has built up to capture demand for emerging market debt.

The new fund joins Nordea’s existing Emerging Market Hard Currency Bond Fund, which returned 9.6 percent so far this year, and its Emerging Market Local Debt Fund and Emerging Market Local Debt Fund Plus, which have both gained 1.4 percent. The latest offering will give investors a wider range of investments.

“You need the complete set of investment capabilities to actively exploit market opportunities,” he said. “That means you need to have emerging markets debt hard-currency capabilities, preferably split into sovereign and corporate, and you need to have emerging market local bond and currency capabilities.”

Hard currency is a national currency from a country whose economic and political stability engenders worldwide confidence, such as Switzerland or the U.S.

Frontier Issuers

Ruest, who oversees 6 billion euros ($7 billion), is betting on high-yielding frontier issuers within hard-currency sovereign debt such as the Ivory Coast.

“Africa is the region that sticks out to us as value,” he said. “These issuers are relatively more shielded from potential rate increases by the Fed and we also like the positive reform momentum in some of the names.”

The team is also long duration and interest rate risk in local-currency bonds. It’s overweight Mexican rates but underweight the Mexican peso to limit the downside if the U.S. steps back from trade.

“We put the short Mexican Peso position on as a NAFTA hedge related to the uncertainty that Trump’s dealing with NAFTA creates,” he said. “A risk to the EM investment universe is actually Trump pushing his anti-globalization and anti-trade agenda stronger again.”

Covering the emerging market universe with a disparate range of countries requires broad analytical capabilities, Ruest said. The team frequently visits countries and also attended the IMF and World Bank meetings in Washington D.C. earlier in October.

Economic Fundamentals

“At the core of it we are economic fundamental investors,” he said. “We look at different growth trajectories, different inflation scenarios, structural reform momentum and the political situation among other things within countries.”

With emerging markets debt yielding around 5 to 6 percent and emerging markets currencies being long-term “quite cheap,” there’s now a “good entry point”, according to Ruest.

“If you put EMD in relation to high-yield corporates, particularly U.S. high-yield corporates, EM debt is a much preferred value proposition because the valuations are less stretched and on top of it EM debt is likely to be less reactive to upwards moves in yields,” he said.

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