Emerging-market investors who cherry picked the best bonds in the first six months of the year are changing tack for the second half.
AllianceBernstein LP, Ashmore Group Plc and other money managers who piled into debt from places like Cameroon, Mongolia and Costa Rica -- earning outsized returns amid rallies in those countries -- are now seeing better value in nations such as Turkey, Ukraine and Ecuador.
Ashmore funds benefited from owning all of the top 10 sovereigns in the first half of the year, including overweight positions in Mongolia and Zambia. But now “most of those trades are behind us,” said Jan Dehn, the head of research at the London-based investment manager, whose $1 billion Emerging Markets Total Return Fund has outperformed 94 percent of peers in the past year, according to data compiled by Bloomberg.
Dehn now favors creditors from oil exporters in Central Asia and Latin America, which were among the worst performers to start the year as crude dropped almost 15 percent. In doing so, he’s pivoting from Cameroon and Mongolia, which were boosted by multilateral aid packages, as well as Costa Rica.
“Most of the oil credits are going to survive,” he said. “They trade at distressed spreads, but they will survive, so they are a good yield play.”
Here are some of the other second-half picks by money managers who’ve gotten it right in 2017:
Turkey
1H total return: 8.9% (10th out of 69 developing nations)
After profiting from long bets on Mongolia, Cameroon, Ethiopia, the Dominican Republic and Turkey, AllianceBernstein portfolio manager Christian DiClementi is shaking things up. He’s reduced debt holdings in all of those nations aside from Turkey, where he says bonds remain cheap after suffering losses last year amid a military coup attempt against President Recep Tayyip Erdogan and questions about the central bank’s credibility.
Carl Ross, a sovereign debt analyst at Grantham Mayo Van Otterloo & Co., also has a small overweight in Turkish notes. The firm’s developing-nation bond fund has topped 94 percent of peers in the last year, Bloomberg data show.