While he still sees opportunity within the sector, he believes those investors who missed the 20% per annum growth trajectory and are still looking for it is looking in the wrong direction.
“I think you have to go back to 2013 and the taper tantrum to get some perspective of where we are now. We saw a lot of non-dedicated money leave the asset class. On the plus side, their departure means there is less volatility in asset flows and therefore less volatility over all in the asset class.
“Emerging Markets has this reputation for having lots of volatility and lack of liquidity but that couldn’t be further from the truth, it is an investment grade asset class that has grown out of having been a high yield asset class 10 years ago,” he added, pointing out that more than 50% of the issues the firm invests in now are quasi sovereign
And, he said, for the sector as a whole, the volatility last year was half that of the US Investment Grade sector, but still yielded more than the US High Yield Sector.
Part of the reason for this, he says, is that the US dollar denominated emerging market corporate space has gone through something similar to what happened in the US investment grade market in the 1990s – massive, total diintermediation of the local banking system and a proliferation of deals, largely out of Asia , that have taken the investible universe from 300 names to 1300 names over the last five or six years.
And, he added, typically when deals come to the market, they often have to come cheap because they are not names known outside their domestic universe.”
Looking forward, he said, in terms of return, given that the market is up around 5% already in 2016, the year is likely to be, at best, a carry year.
In terms of flow, however, he said, there might be a bit of an issue, as he expects it to be the first negative net supply year in 15 years.