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This Contrarian $70 Billion Investor Goes Long on Emerging Bonds

  • Jupiter AM likes Dollar notes maturing in 30 years or longer
  • Overweight on financials and transportation; avoids SOEs

There are plenty of calls out there on the death of the global bond bull market. But some are still happy to take the other side of that bet.

Jupiter Asset Management, for one, is happy to go out on the risk curve. While emerging-market dollar bond investors have been piled into shorter-dated securities as 10-year Treasury yields climb toward 3 percent, Alejandro Arevalo, a fixed-income fund manager at the firm, says it’s better to go long.

“What you have seen in the EM space is -- in some cases the curves have become very steep because investors want to stay short duration and move away from say, 30-year or longer bonds,” London-based Arevalo said in an interview in Hong Kong on Monday.

Under-performing

Longer duration Asian dollar bonds offer worse return

Source: Bloomberg Barclays Index

The latest drop in bonds could provide a good entry point for newcomers, says Arevalo, who helps manage assets at Jupiter that stood at $67.8 billion as of December. Among the longer-dated notes that could offer good opportunities are those sold by China’s consumer giant Alibaba Group Holding, he said. Arevalo has also been also adding positions in longer-duration Latin American notes.

Arevalo isn’t a fan of taking out risk when it comes to credit quality, though. He says it’s best to increase your investment-grade allocation, so that "you are moving up the credit ladder.”

Among emerging-market bonds he likes and is avoiding:

  • Overweight in financials, as they benefit from a stronger economy in the region
  • Also likes transportation companies such as Brazilian airlines
  • Tends to steer clear of state-owned companies “that rely on government support to have better ratings”
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