Article date: 6 February 2007
Morley Fund Management, through Aviva Fund Services, has launched the Aviva Morley Emerging Markets Local Currency Bond Fund aimed at European and UK institutional and retail investors*.
The fund aims to benefit from yield differences between local currency emerging market bonds and the developed bond markets.
The fund manager, Kieran Curtis maintains that investors' interest is shifting towards local market currency investment, as this sector still able to offer high real returns.
"Supply of dollar and euro denominated government debt has diminished, leading to yield compression and causing investor interest to move elsewhere. The demand for local currency bonds is strong and on the increase. Such phenomena are rapidly injecting life into a new asset class.
"I believe that investment in local markets allows investors attractive high nominal and real yields with further opportunities for currency to appreciate in value. This fund was created with the intention of providing investors with access to bonds with high potential returns that are not correlated with traditional bond and equity markets, so allowing for risk diversification," he stated.
The rationale behind the fund is reinforced by recent industry research conducted in the sector. A survey conducted by Emerging Markets Traders Association** has revealed that countries showing improved economic fundamentals, allowing them to "cushion" themselves against external influences, have issued more local currency debt, decreasing their dependence on foreign currency bonds.
When commenting on this research, fund manager Kieran Curtis said over 60% of security exchanges now occur in local currency, confirming the trend that is taking place. This is also proof of the methods of emission.
Against its benchmark, the JPM GBI-EM Broad Diversified Index, the fund aims to achieve capital growth and income with investment in local currencies and bonds in emerging countries.
Expressing his opinion on the launch, Mark Watts, head of global fixed income at Morley, asserted that: "This phenomenon underlines to a greater extent Morley's onus to introducing innovative funds to the market. The Aviva Morley Emerging Markets Local Currency Bond Fund adds to the strong Morley product a series of successes obtained in the Emerging Market debt and equity funds."
The fund is an Aviva Morley SICAV fund, based in Luxembourg, and is available for sales in the UK and other European countries.
* The distribution and supply of shares through Aviva Morley SICAV may be subject, by law, to restrictions. Copies of the Prospectus and document report and accounts can be requested for free from Morley Fund Management or the Aviva Fund Services Luxembourg offices. The value of an investment in the fund and the income that derives from it can increase as well as decrease, and in addition can vary according to changes in exchange rates. Investors may not recuperate the whole amount that was invested.
** The Emerging Markets Traders Association research
is available at http://www.emta.org/