The BlackRock Corporate Bond Fund is steering away from emerging market debt as the sector continues to struggle.
Simon Blundell, who co-manages the £275m fund with Ben Edwards, says investors have to be ”extremely bullish” when it comes to EMD – which he is not.
Blundell says: “I’m not interested in emerging markets at the moment because over the last six months we got a very clear signal of how they trade in difficult markets.”
Analysts such as Lombard Street Research and Capital Economics suggested that EMD could be approaching bubble territory during the opening six months of the year, while M&G bond manager Mike Riddell has also warned on emerging market debt in the past, saying the space is ”not so safe”.
EMD experienced a significant sell-off over recent months as investors grew concerned about possible tapering of stimulus by the Federal Reserve and the threat of a new credit crunch in China.
The JP Morgan EMBI Global Index is down by 11.6 per cent since 15 May, despite signs of gaining some ground in recent weeks. Following the sell-off, some commentators remained sceptical that valuations in the EMD space had returned to attractive levels and suggested the correction had failed to create a buying opportunity.
Blundell adds: “You would have to be extremely bullish to invest in EMD.”
However, the manager has recently added more US exposure via credit default swaps within his fund. He says: “We are overweight on the US versus Europe, and we did this using credit default swaps.”
Blundell has also reduced his duration to 6.5 years in order to position the fund in anticipation for further volatility.