Welcome to the Astute Fund Overview.

A small part of the role for each member of the investment management team, is to have a constant awareness of global macro-economic news, to have our fingers on the pulse, (and this is often the focus of the Astute Market Overview). Whilst the team aren’t driven by market noise, we do constantly assess what this news means for our outlook, and for the funds. In this commentary, we aim to shine a light on just that, by focussing on a recent trade.

We’ve recently increased exposure to emerging market debt within the VT Astute funds. This is essentially lending money to emerging market borrowers (both governments and corporations), or borrowers with significant exposure to emerging markets.

Let’s dive into some of the reasoning behind this:

The team are conscious that countries within the emerging market arena have been plagued with many economic headwinds recently: the coronavirus pandemic, war, political uncertainty, and dollar strength.

However, there are now signs that some of these headwinds are easing.

Turning to monetary policy, we can see that many emerging markets countries are ahead of the US in their cycle of increasing interest rates and tackling inflation. Furthermore, emerging market countries are likely to be cutting rates before many western central banks. This key factor not only improves the potential for capital improvement when investing in emerging market debt vs debt in other regions, but also adds a pleasing level of diversification to our fixed income holdings.

The economic outlook for emerging markets has brightened too: the IMF economic outlook update for January 2023 projects stronger economic growth for emerging market and developing economies for 2023 and 2024 than advanced economies. This economic strength on the horizon spells an improved credit story for the region.

China makes up a large part of the emerging markets investment space. In our regular commentaries, we have previously highlighted the strict zero-Covid policy in China, that kept consumers indoors. This policy was essentially dropped in December, allowing pent-up consumer demand to be released, and allowing Chinese consumers to spend their savings that were built up during the pandemic.

Back to the VT Astute funds, we have recently focused on increasing the fixed income exposure within these funds, and this emerging market debt trade positions the funds nicely, and allows us to have the appropriate levers in place to easily increase or decrease exposure to capture upside in given market conditions.

We’ll return next week with the Astute Market Overview, but if you have any questions about the funds specifically that we may be able to answer in our next Astute Fund Overview, please speak to your financial planner.

See you next time.