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Our Edge in Local Currency

December 10, 2020 | Emerging Markets Debt

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Emerging markets are complex and rapidly changing, and successfully navigating them requires the focus and skill of a dedicated investment team.

Watch the video or read the recap below.

Emerging markets are complex and rapidly changing. Successfully navigating them requires the focus and skill of a dedicated investment team.

We have a global presence in both research and trading, giving us 24-hour access to markets. Our portfolio managers have dual functions, both evaluating and selecting securities and participating in trade execution. The team maintains constant contact with the market, responding quickly to new developments.

We believe diversification of alpha sources is the best way to meet our strategy objectives through market cycles and conditions. Our diversification discipline effectively means constructing portfolios by deploying a large number of small, active positions, which we believe leads to superior risk-adjusted returns over the medium term. Our research incorporates more than 80 emerging market countries.

Our investment process combines bottom-up analysis of sovereign and corporate issuers and currencies with top-down analysis of global and regional market conditions.

For both top-down and bottom-up, we use a risk scoring framework. Top-down scores are set monthly in a joint effort by the wide emerging markets debt team. Bottom-up scores are determined by the individual who manages that strategy. The resulting scores represent the sum total of our assessment of each asset class issuer or security. This translates directly into overweight or underweight exposures.

Our local currency strategy separates foreign exchange (FX) and rates decisions. This allows us to adopt a more tactical approach in FX, where periods of excess volatility and large drawdowns are more frequent.

This ultimately benefits the potential long-term risk and return characteristics of our investments.

Daniel Wood is a portfolio manager on William Blair's Emerging Markets Debt Team.

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