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Blended Debt combines external sovereign debt and corporate debt with local currency debt and FX and should be viewed as a strategy rather than an asset class. This strategy tactically allocates between other fixed income themes in order to enhance returns and reduce risk.
Blended Debt is particularly suitable for the current global macroeconomic environment. This is an environment of serious vulnerabilities in the Heavily Indebted Developed Countries (HIDC) and unprecedented easing by HIDC central banks. The combination of weak fundamentals and QE-inflated asset prices makes for volatile asset prices, which in turn creates alpha opportunities in Emerging Market space.
The concept behind Blended Debt is to turn general market volatility into alpha sources in Emerging Markets. Blended Debt is suited for those who want to be in Emerging Markets because they see fundamental value, but who are concerned about the volatility of being invested in just a single narrow asset class.
Our Blended Debt strategy seeks to create alpha in two ways: First, it identifies and locks in value around HIDC panics by buying into temporary cheapness where there has been material deterioration in the actual risk in Emerging Markets. Secondly, it exploits distortions arising in the relative value between different themes within Emerging Markets during such events in addition to capturing longer-term credit improvements.
We have managed Emerging Market Blended Debt for nearly a decade and today we manage more than USD14bn in this strategy. The key to successfully managing Blended Debt is to be able to recognise value within a highly complex and diverse investment universe. In a market with many barriers to entry, this strategy especially requires specialist Emerging Markets investment skills and experience.
Ashmore currently offers this theme on a segregated account basis and via investment in commingled funds (Luxembourg SICAV, US mutual fund and private fund).