Emerging Market Debt Video | MFS Active Global Fixed Income

VO: At MFS, our specialized Emerging Market Debt Team of portfolio managers, analysts, and traders work together creating a unified approach based on shared global insights and long-term conviction

Neeraj Arora: Our investment philosophy is focused on seeking absolute and risk-adjusted returns over a full market cycle. The first tenet of our philosophy is to seek alpha through in-depth fundamental research analysis. Bottom-up country selection is the cornerstone of our alpha generation. The second tenet of our philosophy is to be globally diversified and to embrace a broad opportunity set. We are looking to add alpha incrementally across numerous decision points, versus taking big concentrated positions. The third tenet of our philosophy is to emphasize the management of downside risk, as we believe it's as important to limit exposure to downside as it is to capture upside opportunities. Now, we implement this philosophy by following a value-oriented approach. That is to say, we identify divergences between fundamentals and valuations to build a well-diversified and liquid portfolio of securities that offer attractive risk-reward, and with a lot of attention paid to downside risk.

VO: At the portfolio level, the team manages risk by focusing on allocation and risk budgeting along with views on the macro environment, fundamentals and valuations.

Ward Brown: The key to our idea generation is finding a divergence between what the market is pricing and what fundamentals say. Our research-intensive fundamental analysis develops fair value estimates for all the securities that we invest in. And when we see a difference between these valuations and the prices that are in the market, our analysts will initiate a trade idea to either underweight or overweight the security in question. We regularly monitor fundamental developments across a wide range of emerging market countries, and whenever there's a change in fundamentals, our team analyzes whether or not this change is being fully reflected in the current market pricing. At the same time, we regularly monitor market prices, we aim to be disciplined in closing trades whenever prices move to our fair values. And when prices move for reasons that are not fundamentally driven, this may open up a divergence, a mispricing that we can respond to by initiating a new active position in the portfolio.

VO: Open dialogue and connection are key to our active fixed income approach and why our global investment teams regularly share information.

Rodolfo Luzio: Our research framework is based on three main pillars. The first one is our fundamental analysis. It helps us understand the main economic and policy drivers of the countries. We take a deep dive on the growth opportunities, the policy challenges, and the political and external risks. The second pillar is our deep country knowledge. Our team has first-hand experience through on-the-ground research trips and regular contacts with policymakers and local stakeholders. This has help us gain a deeper understanding of the motivation behind the policies and political constraints, as well as the economic and market developments. The third pillar is our rigorous data-focused approach. We use our own quantitative models to compare relative country performance that helps set benchmarking of the countries and reduce biases. We then take our valuation tools to identify potential price dislocations and assess relative value opportunities.

 

VO: When developing investment ideas in the corporate space, our team brings together the full depth and breadth of their combined research, analytics and sector expertise. 

Mandela Toyo: In corporates, our research framework rests on three pillars. First, we seek to generate differentiated insights through primary research and deep sector expertise. Our team is organized by sector, not geography. This provides a global view of each sector. We visit countries frequently, and we've built strong relationships with management teams, sector experts, and policy makers, which deepens our insights. Second, we benefit from collaborating with MFS's global research platform. Corporate analysts collaborate with EM sovereign colleagues and equity and non-EM fixed income colleagues to develop investment ideas. This cross asset, cross geography perspective sharpens our views on risks and opportunities. And third, we have a rigorous risk management culture. Analysts are regularly re-underwriting credits, stress testing assumptions, and highlighting downside risks. Quarterly analyst reviews with portfolio managers adds to our disciplined risk management approach.

VO: Our disciplined actively managed approach offers clients access to comprehensive Fixed Income expertise, a range of strategies, and active returns for long-term goals.

Katrina Uzun: What really sets us apart is our focus on seeking competitive risk-adjusted returns while preserving capital across all four of our strategies: hard currency, local currency, corporate, and blended. We've been managing emerging markets debt since the early 90s, so we've experienced nearly every type of market cycle. That history shapes how we manage risks today, whether it's navigating deteriorating credits or identifying value. Our approach is very value-driven. We're focused on spotting the gaps between fundamentals and valuations, so we are aiming to avoid overpaying for risk while keeping the right balance between risk and potential report. The team itself is one of our greatest differentiators. Ward and Neeraj have worked together since 2011, and over time they've built a very seasoned and international group. Many of us actually grew up in emerging markets from China and India to Nigeria, Bolivia, Argentina, and Ukraine. Collectively, we speak more than 15 languages, which means when something happens on the ground, whether it's reading a local newspaper or meeting with government officials, we can access those insights directly. When you put it all together, a tenured team, disciplined value focus, and unique global perspective, we believe this combination provides clients with a differentiated approach to emerging markets debt.

Investments in debt instruments may decline in value as the result of, or perception of, declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer-specific, or other conditions. Certain types of debt instruments can be more sensitive to these factors and therefore more volatile. In addition, debt instruments entail interest rate risk (as interest rates rise, prices usually fall). Therefore, the portfolio’s value may decline during rising rates. The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice. No forecasts can be guaranteed.

 

The views expressed are those of the speaker and are subject to change at any time. These views do not necessarily reflect the views of MFS or others in the MFS organization, and should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product.

 

This material is for information only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. Any securities and/or sectors mentioned herein are for illustration purposes only and should not be construed as an investment recommendation. Investment involves risk. Past performance or any prediction, projection or forecast is not indicative of future performance. The information contained herein may not be copied, reproduced or redistributed without the express consent of MFS. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, MFS does not give any warranty or representation, expressed or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. MFS accepts no liability for any loss, indirect or consequential damages, arising from the use of or reliance on this material.

 

The views expressed are those of the author and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice. No forecasts can be guaranteed.

 

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