If there is a flight to safety, it won't necessarily be kind to emerging market currencies. When a similar mind-set took hold in 2010, she says, investors piled into the U.S. dollar and Treasury securities.

"I don't mind taking on the added volatility of local currency bonds if it means achieving better returns than dollar-denominated securities," she says. "But I don't think that's the case right now."

She also favors less-discovered corporates over sovereign bonds, and the fund's portfolio today has over three-quarters of its assets in dollar-denominated corporate securities. "As an asset class, sovereign debt has played itself out over the last ten years," she observes. "I would describe the valuations there now as fair to expensive."

Corporates also have an added kicker in the form of potential credit rating upgrades, a scenario that she believes has been largely played out in the government bond market. "Of course, there will be a continued improvement in country debt ratings, but at current valuations I think a lot of the good news has already been priced into the sovereign debt," she observes.

Although companies have improved their finances, there is still plenty of room for credit rating improvements. The fund, which has an expense ratio of 1.20%, has nearly half of its assets in investment-grade issuers, but most of that is clustered at the 'BBB' level, the lowest investment-grade rating given by Standard & Poor's.

Many investors have not woken up to the strong balance sheets and businesses that some emerging market companies offer. "One study shows that, across all rating tiers, emerging market corporate credits were less levered than their developed market counterparts, and that means they are on more solid financial footing," she says. "Many of these credits compare favorably to investment-grade companies in the U.S. Some of them are top ten players in the world markets. The only reason they're rated below investment grade is that they are domiciled in emerging market counties."

She compares the perception of corporate emerging market debt to where sovereign debt was a few years ago. "What we're trying to do is find corporate credits that can make the transition to investment grade, as a number of countries did. Seven or eight years ago, Russia was on the verge of default. Now, it's an investment-grade credit." In a few cases, such as Brazil's Petrobras, companies are achieving investment-grade status before their country of domicile.

Another lift comes from the stealth inclusion of emerging market corporate bonds in a number of benchmark indexes that many investment managers use to tailor their portfolios. Even though they hail from emerging markets, a number of EM companies have found their way into developed market indices because of their favorable financial profiles. Padilla says she's seen participation in these indices rise from 2% a few years ago to 10% now, and she expects the trend to continue as more issuers tap the debt markets. Some high-yield debt fund managers are also increasing their allocations to EM corporate bonds, she says.

To find bonds she likes, Padilla combines the credit analysis of a company with the economic outlook for its domicile country. In addition to a strong financial position, companies must have the ability to compete globally and operate in strategically critical sectors such as banking, natural resources, telecommunications and utilities.

She highlights leading Brazilian ethanol producer Cosan as a company that can enhance its financial position after a recent joint venture with Shell. As part of that agreement, the latter company agreed to assume much of Cosan's debt.

In Mexico, leading tortilla maker Gruma ran into trouble a couple of years ago after some ill-timed currency swaps. Recently, Padilla began buying its bonds after she determined its move to refinance its debt from the currency transaction at favorable terms would improve its financial position over the long term.