DoubleLine Funds Senior Portfolio Manager Luz Padilla (left) is sticking to a higher quality, mostly corporate bond portfolio. She is the portfolio manager of the DoubleLine Emerging Markets Fixed Income Fund (DBLEX/DLENX).
On a conference call on Nov. 16, Padilla outlined the fundamentals of emerging markets debt and commented on the credit issues surrounding the PIGS (Portugal, Ireland, Greece and Spain) sovereign debt.
Emerging Markets Debt
Speaking of the fundamentals of investing in emerging markets, Padilla says that ratings upgrades and downgrades for emerging and developed markets have diverged—the ratio is “6:1” upgrades for emerging markets to downgrades for developed markets, year to date 2010. Emerging markets economies are on track to be 50% of the global GDP, up from just under 35% in 2009. Consumption in emerging markets is now 35% of the global consumption pie. Income has tripled, per capita, she says, in emerging markets economies, and “fiscal deficits” and “debt ratios” are “less than half “of what they are in the developed countries, Padilla explains.
Inflows to emerging markets debt have been strong, at $69.47 billion in 2010, Padilla notes, adding that the EMBI (JP Morgan Emerging Market Bond Index Global Diversified), the benchmark for her fund, is up 16.36% year to date with a standard deviation of 4.20 %, and the CEMBI (JP Morgan Corporate Emerging Market Bond Index Broad Diversified) is up 14.03%, with a standard deviation of 2.65%.
In Padilla’s Fund
Padilla’s strategy heavily favors corporate rather than sovereign bonds, with over 76% in emerging corporates. All of the holdings are dollar-denominated rather than in local currencies. More than half (53%), are investment grade and the average duration is 6.10 years, and an average life of 9.10 years. She has stayed away from local-currency denominated sovereign debt and corporate debt. She’s also been sticking with “strategic” sectors, like banking, utilities and transportation.