At just under 15% of assets, the fund's largest country weighting is Brazil, followed by Russia at 14% and Mexico at 13%. She has a 12% weighting in Peru, where she sees great strides in economic growth that should benefit the country's companies.
Chinese companies account for only about 5% of the fund's assets, even though they are very active in the high-yield market. Padilla says many of the companies in the region lack transparency and are involved in the bubble-prone property sector. She also steers clear of certain pockets in Latin America, such as Venezuela and Ecuador because of problems with government leaders.
Padilla also scrutinizes corporate leadership. For example, in May she passed on a new bond issue from TV Azteca, Mexico's second-largest broadcaster. In 2006, the company's chairman and its CEO paid more than $8.5 million to the Securities and Exchange Commission to settle charges that they profited from improper loan deals.
While the incident highlights the perception of corruption and the lack of transparency that deter some people from venturing into corporate emerging market bonds, Padilla argues that many companies in emerging markets have transparent balance sheets that are as clean as, if not cleaner than, similarly rated businesses in the U.S. and other developed markets.
Better reporting standards and the ability to access information through the Internet makes it relatively easy to follow emerging market company credits, she adds. After following emerging market companies since 1994, first as a credit analyst for TCW and later as the head of the firm's emerging markets fixed-income team, she has also gotten to know some of their managers well. In 2009, she took her expertise to new grounds when she followed former TCW star bond fund manager Jeffrey Gundlach to DoubleLine, the firm he founded after a controversial departure from his former employer.
Padilla is confident that investors will warm up to her independent management style and to emerging market bonds in general. DoubleLine and others recommend that investors have somewhere between 0% and 20% of their fixed-income portfolios in emerging market debt. Given current conditions, Padilla believes around 10% is appropriate.