January 6, 2020 | Emerging Markets Debt

Sustainability in Emerging Markets Debt

Speaker

Yvette Babb

Portfolio Manager

Emerging corporate credit markets are relatively unexplored from a sustainability perspective, but opportunities can be found in unlikely places.

ESG is very important in our view because we see it as an integral part of sovereign risk analysis. So doing country analysis requires one to understand all factors that influence the country’s ability and willingness to pay. Statistically, it is proven to have an influence on the return performance of individual credits. Understanding the individual context of countries becomes more important as countries are less developed.

Not having a full understanding of ESG factors could lead to the wrong investment decisions. We believe that ESG is inherently a bottom-up process. Our ESG framework is analyst driven. Really having an intimate relationship with issuers will help us gauge their momentum, their improvement, their direction.

An integral part of our investment process is the sovereign risk model. The sovereign risk model is centered around two pillars. One pillar is the financial aspect of our model. The second aspect of the model is the ESG aspect. And so those two pillars inform our view of fair value for the spreads on sovereign credits. And we consistently evaluate the outcomes of that model. We have used this as an alpha-generating tool.

The way to create better portfolios is to manage downside risks. And using ESG as a framework to look at these potential financial and reputational risks will help us understand the potential downside of companies, and thus create better risk-adjusted portfolios. And at the end of the day, that’s core to our job. We’re in the business of making the right decisions with the right information.

Filmed January 2020

The views and opinions expressed herein are those of the speaker(s) as of the date of publication, are subject to change without notice as economic and market conditions dictate, and may not reflect the views and opinions of other investment teams within William Blair. Factual information has been obtained from sources we believe to be reliable, but its accuracy, completeness, or interpretation cannot be guaranteed. This material may include estimates, outlooks, projections, and other forward-looking statements. Due to a variety of factors, actual events may differ significantly from those presented.

This video has been provided for informational purposes only and should not be considered as investment advice or a recommendation of any particular strategy product, an offer to buy sell securities related financial instruments in jurisdiction. Investment recommendations can after careful consideration investor’s objectives, guidelines, restrictions.

Investing involves risks, including the possible loss of principal. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks. These risks may be enhanced in emerging markets. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Rising interest rates generally cause bond prices to fall. Sovereign debt securities are subject to the risk that an entity may delay or refuse to pay interest or principal on its sovereign debt because of cash flow problems, insufficient foreign reserves, or political or other considerations. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Individual securities may not perform as expected or a strategy used may fail to produce its intended result. Different investment styles may shift in and out of favor depending on market conditions. Diversification does not ensure against loss. Any investment or strategy mentioned herein may not be suitable for every investor. Past performance is not indicative of future results.

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