Brun Lubert primarily looks at investment opportunities across corporate, agency, quasi-sovereign, and sovereign debt securities issued in the larger emerging economies. We seek to capitalize on progress, with domestic companies in emerging economies aiming to become leaders in their local markets, and becoming more relevant in the global credit arena.
We also act as anchor investor for mid-tier corporates in select industries in developed economies for the purpose of bond issues. Corporates must have a successful operational history of 5 years or more, and operational revenues must be in excess of USD 50 million.
Our investment analysts do not just sit behind a desk, but travel the world, visiting the companies they evaluate. They talk to customers, suppliers, employees, and management, to learn first-hand where a company stands, and where it could go.
We structure and invest in bonds relative to our global debt strategies: (i) developed and emerging markets global high yield; and (ii) emerging markets sovereign and corporate debt. Our teams on the ground seeks to identify the best investment opportunities across hard and local currency issuers, and sovereign and corporate issuers.
Primary Benchmark: J.P. Morgan Corporate Emerging Markets Bond Index Broad Diversified (CEMBI).
The J.P. Morgan Corporate Emerging Markets Bond Index Diversified (CEMBI) is a weighted version of the CEMBI index. It limits the weight of those index countries with larger corporate debt stocks by only including a specified portion of these countries eligible current face amounts of debt outstanding. The CEMBI Diversified results in well-distributed, more balanced weighings for countries included in the index.
The S&P 500 Bond Index has been designed as a corporate bond counterpart to the S&P 500. Market-value weighted, the index measures the performance of US corporate debt issued by corporates listed in the S&P 500. Other bond indices include S&P Eurozone Investment Grade Corporate Bond, S&P Global Investment Grade, S&P Global Corporate High-Yield, S&P Aggegrate Bond Index, and the S&P Municipal Bond Index.
The investment process identifies 4 different stages:
- Identify macro drivers by a top-down assessment of the global environment to determine how the latter interacts with economic fundamentals in high-yield markets and emerging economies. The analysis of global and financial conditions helps to determine the overall risk positioning in our Brun Lubert Global Debt Securities portfolio. Because macroeconomic and politicial developments can have a large impact on the performance of international bonds, we use our macro insights for developing regional allocations and to sidestep country-specific issues.
- Evaluate investment opportunity by using a number of techniques that include inter alia sovereign analysis, currency, interest rate, and yield curve analysis, credit analysis, and generic feasibility analysis.
- Security selection by providing market valuations in different time periods, enabling the identification of potential mispricing and alpha opportunitiies. Potential securities are analyzed through a variety of valuation metrics, including competitor analytics, and cost and capital analytics, taking into consideration the total return potential of investment alternatives, the volatility of returns, and correlation of positions to asses risk, including event risk (such as near-term political factors), and market technicals such as planned issuance, bookrunner success rate, and outlook for asset class flows.
- Diversify and execute by risk management and emphasis on diversification and correlations between asset classes and concentration of countries, investment themes, regions, industries, and commodities.
The risk of investing in emerging markets investment grade and high-yield bonds include the standard risks that apply to all debt issues, such as the issuer’s economic or financial performance, and ability of the issuer to meet payment obligations. These risks increase relative to the potential political and economic volatility of emerging markets. Other risks involve exchange rate fluctuations and currency devaluations. Emerging markets sovereign and corporate debt risk is reviewed by rating agencies, including S&P, Moody’s, and Fitch. Countries that have a rating of “BBB” or higher are considered “investment grade”, whereas lower rating are indicative of speculative-grade investments, where governments and/or corporates, may not be able to meet their debt obligations.
