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Fixed Income
Local currency EMD – Why it might be time to reconsider an active allocation
Edward Harrold
Investment Director
Jeremy Cunningham
Investment Director

An allocation to emerging market debt (EMD) can offer investors a range of potential benefits in the context of their broader portfolios – not least its low correlation with other sub-asset classes of fixed income. The growth dynamics and strengthening economic fundamentals of many emerging market (EM) countries are attractive to investors seeking growth, income and diversification.

Although a passive approach can provide a low-cost introduction to local currency EMD, in this paper we discuss the potential benefits of an active allocation. These include access to a wider source of returns, given the ability to take off-benchmark exposure, and use multiple levers to capture different drivers of return and manage risk; and a more deliberate allocation of capital, which could mitigate unintended consequences of index construction.

Market value of JPMorgan local currency benchmarks

jpmorgan local currency chart

Past results are not a guarantee of future results.
As at 31 July 2023. MV: market value. JGEGDCM: JPMorgan GBI-EM Global Diversified Composite. JGEMBCM: JPMorgan GBI-EM Broad Composite. Source: Thomson Reuters Datastream.

The chart illustrates the growth of local currency EMD as an asset class. In July 2023, the market value of the JPMorgan GBI-EM Broad Index was US$4.6 trillion, while the JPMorgan GBI-EM Global Diversified Index represented only US$1.6 trillion. An active approach provides access to a broader range of markets and instruments which can help to provide greater diversification and an increased number of tools to more effectively manage any periods of heightened volatility.

Edward Harrold is an investment director at Capital Group. He has 17 years of industry experience and has been with Capital Group for 10 years. He holds a bachelor’s degree with honours in international relations from the London School of Economics. He also holds the Chartered Financial Analyst® designation. Edward is based in London.

Jeremy Cunningham is an investment director at Capital Group. He has 37 years of industry experience and has been with Capital Group for eight years. Prior to joining Capital, Jeremy worked as head of EMEA fixed income business development at Alliance Bernstein. Before that he was head of product management at Schroders. Earlier in his career he was a fixed income portfolio manager at INVESCO, J.P. Morgan Fleming and Merrill Lynch. He holds the Chartered Financial Analyst® designation. Jeremy is based in London.


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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.