We believe frontier markets offer a compelling long-term investment opportunity: the combination of faster average growth rates, mostly manageable debt loads, and higher yields is what makes them attractive.
Historically, frontier debt has outperformed other emerging market debt sub-asset classes, as well as the US high-yield segment, due to attractive yields and relatively low default rates. Frontier debt has also proved itself to be a good diversifier in balanced portfolios.
Opportunity
The recent significant widening of high-yield sovereign spreads offers an attractive entry point into the asset class. With the Fed’s recent surprise rate cut – and as we are now well into the cutting cycle – value is slowly being eroded from fixed-income assets around the world. One of the few places left where investors can generate reasonably attractive yields is in frontier markets. Despite recent events pointing to a temporary slowdown in growth, we do not expect to see a significant impact on the broader solvency metrics for the overall asset class; rather, we expect the mean reverting nature of credit to hold true, making today’s spread levels look very attractive.
Investment philosophy and process
UBP’s Emerging Market Debt team has a long history in credit research and security selection. The investment process for the frontier strategies will focus on bottom-up selection, aiming to generate attractive carry throughout the investment cycle, while managing the risks associated with those countries in potential distress.
Thomas Christiansen
Portfolio Manager
EM Fixed Income
