Emerging market debt has taken a pasting in 2022, but there could be a glimmer of hope. The asset class has been a bit of a bloodbath. But a handful of funds have managed to add over $100m despite considerable headwinds. There are also regions where the inflationary peak may have already been reached.

The sector has seen significant drawdowns and outflows across hard and local currency-denominated debt, as well as corporates. Hard currency in particular has taken the brunt of this waning investor sentiment. The JPM EMBI Plus TR index has fallen 30% in the year to 28 October. This is nearly 10% more than the 20.7% decline in the local currency index (Bloomberg EM Local Currency Broad), as the strong dollar increases the debt burden for issuers of hard-currency bonds. $13bn has been pulled from Ucits funds in Morningstar’s Global Emerging Market Bond category alone in the past 12 months.

However, inflation looks to be moderating in the US and we may be approaching the end of the rate-rising cycle, which would provide relief to the sector. Fundamentals in select emerging markets are largely considered healthier than those in developed economies. With the emerging world more used to a high-inflation environment, they raised rates faster and sooner than their counterparts in the West. In some countries, inflation is already coming down quickly – in particular, in Brazil, where the headline rate has fallen from 12% in April to 7% in September.

Which EM debt funds were hit hardest?

• Ashmore Emerging Markets Total Return is bottom of the list after registering outflows of $1bn in the past 12 months. This, coupled with bottom-decile returns of -32.8% over that period – compared with a loss of 23.9% for the average fund – has taken the assets from $3.2bn to just $1bn.
• Neuberger Berman Short Duration Emerging Market Debt ($4.8bn), the largest fund in the sector, is another victim of this changing sentiment and has had outflows of $770m. It has had 10 consecutive months of outflows, including $200m pulled in September alone. However, it has been one of the more robust funds in the category from a performance standpoint, with top-decile returns of -11.4% in the past year.
• Fidelity Emerging Market Debt is another fund suffering poor performance and outflows, posting a loss of 33.3% and outflows of $730m. Elsewhere funds from Pimco, Amundi and Goldman Sachs Asset Management have also experienced outflows of more than $600m a piece.

Which funds have taken money in?

While 71% of the funds in the sector have had net outflows, there are a dozen funds which have taken in more than $100m against this challenging backdrop.

• Chief among them is Schroder ISF Emerging Market Bond which has taken in a highly impressive $660m. Pimco also makes up for being one of the biggest losers by drawing in new investment of $500m into the ESG version of their fund, Pimco GIS Emerging Markets Bond ESG.
• The other standout success has been Aviva Investors Emerging Markets Bond fund which has picked up $420m of new investment in the past 12 months. While these three funds have taken in new money, none has performed particularly strongly, with second-quartile losses from Schroders and Aviva of 22.1% and 22.9% respectively, and third-quartile losses for Pimco of 26.6% over the past 12 months.

All figures are in USD and performance figures are to the end of September 2022 unless stated and based on the Morningstar oldest share class. AUM and flows data is aggregated across all share classes.