Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Despite authorities taking their foot off the environmental, social and governance pedal and recent volatility in equities and bonds, the benefits of Artificial Intelligence and improved investor transparency are just beginning.
Global fixed income allocations already include EM debt –why allocate separately?
The most widely followed global fixed income index includes emerging markets, but asset allocators looking to get full and meaningful exposure to the structural opportunity may need something different.
The mighty ‘Global Agg’
Over the 50 years since they were conceived, Bloomberg’s Fixed Income Indices have grown to become a dominant force in fixed income markets – today they’re tracked by over US$5 trillion of assets globally. Within this suite of indices, the Bloomberg Global Aggregate (the ‘Global Agg’) – comprising debt issued by sovereigns and corporates – is the most widely followed global fixed income index, with a market value of US$59 trillion.
The Global Agg has a relatively sizable exposure to emerging market (EM) debt, with EM countries accounting for almost 16% of the index.1 This often leads investors to believe that their investments in funds tracking the Global Agg give them appropriate and adequate EM exposure, not least since most of the emerging markets in the Global Agg are also found in JP Morgan’s flagship EM debt indices. However, there are various ways in which the EM component of the Global Agg does not fully represent the breadth and diversification of EM issuers, suggesting that a dedicated EM allocation is vital for those seeking meaningful exposure to the full EM debt opportunity set, in our view.
