September, 2023
In the third quarter, the Lazard Emerging Markets Total Return Debt Fund (the Fund) fell 3.89% (net of fees) and lagged the broader asset class. We deployed roughly half of the Fund’s risk budget throughout the quarter with a focus on local markets— particularly those that offered high real yields—in addition to higher quality sovereign and corporate credits. Amid the backdrop of sharply higher global yields, the Fund’s local currency and sovereign credit positions were the main detractors from absolute returns.
Within the Fund’s local currency allocation, exposure to select high yielders such as Mexico, Brazil, Colombia, and Indonesia were the most notable detractors, as broad US dollar strength weighed on local currencies, especially those that had appreciated earlier in the year. In sovereign credit, diversified investment grade exposure detracted amid the sharp rise in US Treasury yields as markets moved to reprice economic strength, particularly in the US. Fund hedges implemented through credit default swaps (CDX) and foreign exchange options detracted marginally during the quarter as emerging markets sovereign credit spreads remained stable despite the challenging market environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2023-09.pdfAugust, 2023
In August, the Lazard Emerging Markets Total Return Debt Fund (“the Fund”) fell 1.48% (net of fees), outperforming the 2.10% decline for the broader asset class and reflecting the Fund’s more defensive positioning.
We deployed just over half of the Fund’s risk budget throughout the month with an emphasis on local currency debt, particularly markets with high nominal and real yields and scope for monetary easing. Within this allocation, the Fund’s long positions in high yielding currencies including the Brazilian real and the South African rand were the most notable detractors as these currencies depreciated amid an environment of broad US dollar strength. To a lesser extent, the Fund’s sovereign credit allocation, with an emphasis on borderline investment grade countries like Colombia, detracted from absolute returns. These losses were partly offset by Fund hedges implemented through credit default swaps (CDX), which contributed as emerging markets sovereign credit spreads widened in the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2023-08.pdfJuly, 2023
In July, the Lazard Emerging Markets Total Return Debt Fund (“the Fund”) gained 0.37% (net of fees), lagging the broader asset class and reflecting defensive positioning.
We deployed just over half of the Fund’s risk budget throughout the month with an emphasis on local debt, particularly markets with high nominal and real yields and scope for monetary easing. Consistent with this positioning, local debt was the main contributor to absolute returns in the month. Within this allocation, the Fund’s long position in South Africa was a notable contributor as rates rallied after the South African Reserve Bank held rates steady in a split decision, compared to consensus expectations of a 25-bp hike. To a lesser extent, the Fund’s sovereign credit allocation with an emphasis on borderline investment grade countries like Colombia contributed to absolute returns. These gains were partly offset by Fund hedges implemented through credit default swaps (CDX) and foreign exchange options, which detracted as emerging markets sovereign credit spreads continued to compress during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2023-07.pdfJune, 2023
The Lazard Emerging Markets Total Return Debt Fund (the Fund) returned 0.13% (in AUD net of fees) in second quarter and lagged the broader asset class, reflecting defensive positioning. We deployed roughly half of the strategy’s risk budget throughout the second quarter and rotated sovereign credit exposure in favour of local debt as we currently see opportunities in markets with high nominal and real yields and scope for monetary easing.
Local rates positions were the main contributors to absolute returns during the second quarter. Within this allocation, exposure to select high yielders such as Brazil, Colombia, and Mexico were the most notable drivers of absolute returns as yields in these markets moved lower in stark contrast to the increase in core rates. The portfolio’s long position in Peruvian rates also contributed as the country’s central bank appears to have reached the end of its rate hike cycle. These gains were partly offset by the portfolio’s sovereign credit positions and portfolio hedges. In sovereign credit, diversified investment grade exposure detracted amid the increase in US Treasury yields during the quarter. Portfolio hedges implemented through credit default swaps and foreign exchange options also detracted primarily driven by the compression in EM sovereign credit spreads.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2023-06.pdfMay, 2023
The Lazard Emerging Markets Total Return Debt Fund (the Fund) declined 1.09% (in AUD net of fees) in May 2023. We continued to deploy a defensive stance throughout the month, deploying less than half of the strategy’s risk budget. Sovereign credit and local currency positions were the main detractors from absolute returns in May. In sovereign credit, long positions in Central and Eastern European (CEE) countries such as Serbia and Poland—which we continue to believe offer attractive yields and balance sheet strength to withstand a slowdown in global growth—were notable detractors.
The Fund’s local currency allocation detracted, consistent with the environment of broad US dollar strength during the month. Within this allocation, long positions in CEE currencies, including the Czech koruna and the Polish zloty, as well as select Asian currencies such as the Malaysian ringgit and Thai baht, were among the most notable detractors. These losses were partly offset by the Fund’s long position in Brazilian local rates, where markets moved to price in rate cuts after the Banco Central do Brazil (BCB) left its key policy rate on hold.
File:April, 2023
The Lazard Emerging Markets Total Return Debt Fund (the Fund) climbed 0.5% (in AUD net of fees) in April, slightly ahead of the broader asset class.
Over the course of the month, we continued to pare the Fund’s risk budget usage from around 65% to less than 50%, primarily by reducing sovereign credit and local currency exposure in markets that may be vulnerable to tighter financial conditions. Sovereign credit and local debt positions were the main contributors to absolute returns in April. In sovereign credit, diversified long positions in Central and Eastern European (CEE) countries such as Serbia, Poland, and Romania—which offered attractive yields and balance sheet strength to withstand a slowdown in global growth—were notable contributors. In local debt, the Fund’s key overweight duration positions in Brazil and Mexico contributed to absolute returns, but these gains were partly offset by South Africa, where local rates underperformed on higher-than-expected inflation. Fund hedges implemented through foreign exchange options detracted slightly.
File:March, 2023
In the first quarter of 2023, the Lazard Emerging Markets Total Return Debt Fund advanced 2.27% (net of fees and in AUD terms).
Over the course of the first quarter, we pared the strategy’s risk budget usage from around 90% to 65% primarily by reducing sovereign credit and local currency exposure in markets that may be vulnerable to tighter financial conditions.
Sovereign credit and local debt positions were the main contributors to absolute returns during the first quarter. In sovereign credit, long positions in borderline investment grade countries that offered attractive yields and balance sheet strength to withstand a slowdown in global growth such as Romania and Serbia were notable contributors. These gains were partly offset by Egypt, which underperformed on concerns over the country’s ability to continue to tap capital markets to meet financing needs. We eliminated the portfolio’s position in Egypt during the quarter because the government has failed to make progress on much needed policy reforms. Throughout the quarter, we maintained a roughly 25%–35% allocation to local currencies, which also contributed as EM currencies appreciated by over 2% against the dollar. Within this allocation, long positions in high yielders (e.g., Mexican peso and Brazilian real) and Central and Eastern European (CEE) currencies (e.g., Hungarian forint and Czech koruna) were beneficial. In local rates, key positions in South Africa, Mexico, Colombia, and Brazil all contributed meaningfully to absolute returns, as local yields followed the decline in core rates. Portfolio hedges implemented through foreign exchange options detracted marginally in the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2023-03.pdfFebruary, 2023
The Lazard Emerging Markets Total Return Debt Fund (“the Fund”) fell 2.78% (net of fees in AUD terms) in February. In late 2022, we began adding risk to the strategy, primarily in the most cyclical parts of the market—high yield sovereign credit and local currencies—increasing the strategy’s risk budget usage from around 40% to 90% in the process. Over the course of the past month, we have pared risk budget usage to around 75% primarily by reducing sovereign credit exposure in countries that may be vulnerable to tighter financing conditions. All of the strategy’s major risk buckets—sovereign credit, corporate credit, local rates and local currency—detracted from absolute returns in February as the asset class gave back a portion of its January gains. In sovereign credit, the Fund’s small exposure to select high yielding credits including Ecuador was the largest detractor. Throughout the month, we maintained a roughly 30-35% allocation to local currencies, which also detracted as emerging markets currencies depreciated by around 2.6% against the dollar. Within this allocation, Asian currencies including the Thai baht, Malaysian ringgit and Indonesian rupiah detracted the most. We chose to focus on these currencies because we expected them to be the biggest beneficiaries of China’s reopening; uncertainty over China’s policy trajectory contributed to volatility in these currencies during the month. Within the strategy’s corporate credit allocation, the Chinese real estate company Country Garden was a notable detractor as bond prices declined after strong gains over the past few months. We have maintained this position as we believe the company will receive additional government support, and thus we see significant additional upside potential from current levels. These losses were partly offset by fund hedges implemented through foreign exchange options.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2023-02.pdfJanuary, 2023
The Lazard Emerging Markets Total Return Debt Fund advanced 3.81% (net of fees in AUD) in January and slightly outperformed the broader asset class. Early in the fourth quarter, we began adding risk to the Fund, primarily in the most cyclical parts of the market—high yield sovereign credit and local currencies – increasing the Fund’s risk budget usage from around 40% to 90% in the process. This decision was beneficial in late 2022 and continued to bear fruit as the broad-based risk rally picked up the new year where it left off.
All of the Fund’s major risk buckets—sovereign credit, corporate credit, local rates and local currency—contributed to the strong January, with the Fund’s sovereign credit and local currency exposures contributing the most. Throughout the month, we maintained a roughly 35% allocation to local currencies, which is near the highest allocation since the inception of the Fund in 2010.
All of the Fund’s local currency positions contributed to performance, with Asian currencies including the Thai baht, Indonesian rupia and Malaysian ringgit contributing the most. We chose to focus on these currencies because we expected them to be the biggest beneficiaries of China’s re-opening due to their sensitivity to Chinese growth. Within the Fund’s roughly 20% allocation to corporates, the Chinese real estate company Country Garden was a key contributor as the bonds continued their strong recovery, reaching $70 on positive developments around government support and China’s re-opening. Despite the strong rally, we have maintained the position as we believe the company will receive additional government support, and thus we see significant additional upside potential from current levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2023-01.pdfDecember, 2022
The Lazard Emerging Markets Total Return Debt Fund (‘Fund’) gained 5.04% (net of fees) in the fourth quarter, helping pare the year’s losses to 16.12%. While we are disappointed with the Fund’s absolute performance in 2022, we believe it is important to view performance through a longer-term lens. The market environment since the start of 2020 has been particularly challenging with the broader asset class suffering a cumulative loss of -16%. Over the same time period, the Fund outperformed with significantly less volatility and a cumulative loss while realizing a volatility that is lower than that of the index.
For much of 2022, we maintained a relatively conservative overall risk stance, which helped insulate performance during the record drawdown in emerging markets debt. During the fourth quarter, we grew increasingly constructive and accordingly added risk to the portfolio, increasing the risk budget usage from around 40% to over 90%. The decision to increase risk proved timely as markets rebounded significantly during the final months of 2022. All of the Fund’s major risk buckets – sovereign credit, corporate credit, local rates and local currency – contributed to the strong fourth quarter. In sovereign credit, the Fund benefited from an emphasis on BB and B rated counties, including Oman, Paraguay, Dominican Republic, Angola and Ecuador. In corporates, the contributors were similar broad-based across our idiosyncratic bottom-up positions, although a position in the Chinese real estate company, Country Garden, was particularly beneficial. In our view, we believe Country Garden may continue to receive support from the Chinese government given its systemic importance, and that price weakness was a result of market technical and forced selling. Bond prices nearly doubled during the quarter, reaching levels in the mid-US$60s for the first time since early June 2022 on news that state-owned banks vowed lending support to select Chinese developers. In local currency, a key theme as we increased risk throughout the quarter was a focus on carry in both currencies and rates. We have emphasized idiosyncratic exposures and were rewarded during the quarter. In currencies, high yielders such as the Mexican peso, Brazilian real and South African rand contributed. The top contributor was the Thai baht which rallied over 10% and significantly outperformed the broader currency universe since we initiated the position on the view that Asian currencies stood to benefit from China’s reopening. In local rates, key positions in South Africa, Peru and Mexico all performed well. The only notable detractors from performance were the Fund’s hedge positions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2022-12.pdfNovember, 2022
The Lazard Emerging Markets Total Return Debt Fund enjoyed one of its best months in its decade-plus history, notching a gain 5.07% in November (net of fees and in Australian dollar terms). In recent months, we have maintained a relatively conservative overall risk stance, which helped insulate performance during the record drawdown in emerging markets debt this year. Over the past several weeks, we have been incrementally adding risk as we have grown increasingly constructive on the asset class.
Since the end of the third quarter, we have increased risk budget usage from around 40% to nearly 100%. All of the fund’s major risk buckets—sovereign credit, corporate credit, local rates and local currency —contributed to the strong return in November. In sovereign credit, the fund benefited from exposure to a broad range of high yield countries as well as a position in CDX.EM, which allowed us to increase risk in an efficient and liquid manner. Within corporates, the contributors were similar broad-based across our idiosyncratic bottom-up positions, although a strong rally in the Chinese real estate company Country Garden was particularly beneficial as jumped nearly 35 cents on dollar. Although the position is small, the large move added around 25 bps to performance on the news that state-owned banks vowed lending support to select Chinese developers, including Country Garden which is the country’s largest builder and systemically important.
Positioning in local rates and local currencies were also beneficial, albeit to a lesser extent as we began the month with minimal exposure and gradually added over the course of the month. All of the fund’s key duration positions—South Africa, Mexico, Peru, and Brazil—contributed to performance. In currencies, key positions in the Mexican peso, South African rand, Central and Eastern European (CEE) currencies were all additive to performance, although these gains were partially offset by a recently initiated position in the Thai baht. There were no material detractors to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2022-11.pdfOctober, 2022
The Lazard Emerging Markets Total Return Debt Fund declined 0.63% in October (net of fees and in Australian dollar terms), as the challenging market environment for fixed income and emerging markets persisted. Although we maintained a conservative stance throughout October with a significantly higher than normal cash balance, absolute performance was still dragged into negative by the rise in global fixed income yields.
We began the month deploying around 40% of the strategy’s risk budget and gradually increased risk to around 60% as valuations are as attractive as they’ve been in recent history, and we are highly confident in the medium-term outlook for the asset class. During the month, we continued to favour hard currency debt with a focus on BB rated credits and parts of the investment grade universe, which offer an attractive mix of high carry of 6-8% and solid bottom-up fundamentals. During October, the Chinese real estate company, Country Garden was a notable detractor. Country Garden’s bonds traded down from roughly 30 cents on the dollar to less than 10 cents on little company-specific news. The sector on the whole reached new lows, reflecting a further loss of investor confidence and a continued downturn in China’s property market. Country Garden, which is China’s largest developer by contracted sales, remains current on its debt, yet its bonds trade at similar levels to Evergrande, which is probably the most high-profile casualty in the sector and is currently in the midst of a complex restructuring.
Given the low dollar price on the Country Garden bonds and small position size in the fund, we have retained the position. Despite the high degree of uncertainty in the sector, we see potential for considerable upside if the Chinese governments helps improve funding conditions. The fund’s highly idiosyncratic positioning in local debt earned positive returns in October, in contrast with the negative performance of the broader local debt market. The fund’s local rates positions are focused in five countries—Brazil, Peru, South Africa, Mexico, and Colombia—where central bank tightening cycles are more advanced or paused and real rates are high. Both Brazil and Peru were notable contributors in October. In Brazil, we held overweight exposure in rates and the real, both of which continued their recent strong performance. Inflation has been declining for a few months now in Brazil and the central bank has finished its tightening cycle, which was one of the most aggressive in emerging markets.
Furthermore, the political backdrop has improved. Former president Luiz Ignacio Lula da Silva defeated incumbent Jair Bolsonaro by a narrow margin in the runoff election on 30 October. More importantly from a bondholder perspective, the composition of Congress and the narrow margin of victory are signs that Brazil is likely to maintain sound fiscal policy going forward.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2022-10.pdfSeptember, 2022
The Lazard Emerging Markets Total Return Debt Fund fell 1.95% (net of fees and in Australian dollar terms) during the third quarter but outperformed the 5.20% decline of the blended emerging markets debt index. On a year-to-date basis, although the fund is down 20.14%, it has outperformed the blended asset class by a margin of over 200 bps. While we are disappointed with the absolute performance of the strategy this year, we believe it is important to view performance with a longer-term focus.
The market environment since the start of 2020 has been particularly challenging with the broader asset class suffering a cumulative loss of -25.3%. Over the same time period, the strategy has delivered on its objective of outperformance with significantly less volatility. The strategy has helped preserve capital with a cumulative loss of 11.1% while realizing a volatility that is around 20% lower than that of the index.
During the third quarter, we continued to gradually decrease the fund’s risk usage from around 75% to 40% which helped preserve capital, especially during the 7% decline in the asset class during the last few weeks of the quarter. Throughout the quarter, the vast majority of the fund’s risk was allocated to hard currency debt, and accordingly, this was the main detractor from absolute performance. About 30% of the fund’s overall risk budget was allocated to sovereign credit with a roughly equal allocation across investment grade and BB-rated credits.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2022-09.pdfAugust, 2022
The Lazard Emerging Markets Total Return Debt Fund declined -0.24% (net of fees and in AU dollar terms) during August 2022. The market environment since the start of 2020 has been particularly challenging with the broader asset class suffering an annualized loss of over 7%. Through this market, the strategy has delivered on its objective of outperformance with significantly less volatility by preserving capital with a much smaller loss of while realizing a volatility that is around 20% lower than that of the index. During the month, gains from the portfolio’s idiosyncratic corporate credit positions were largely offset by rising yields in sovereign credit. Specifically, the portfolio’s small exposure to a Chinese real estate developer was a notable contributor as bond prices rebounded on signs of policy support. A long position in Brazilian rates was also beneficial as Brazilian yields rallied on falling inflation and an expectation that the end of the rate hike cycle is imminent. In sovereign credit, exposure in the long end of select investment grade countries with steep yield curves including the Philippines, Uruguay and Qatar was a notable detractor amid the sharp rise in US Treasury yields.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2022-07-1.pdfJuly, 2022
The Lazard Emerging Markets Total Return Debt Fund gained 1.45% (net of fees and in AU dollar terms) in July. The market environment since the start of 2020 has been particularly challenging with the broader asset class suffering an annualized loss of over 7%. Through this market, the strategy has delivered on its objective of outperformance with significantly less volatility by preserving capital with a much smaller loss of 2.9% while realizing a volatility that is around 20% lower than that of the index.
The main driver of absolute returns during the month was the fund’s roughly 40% allocation to hard currency sovereign debt with an emphasis on BB and investment grade rated countries. Among the largest contributors were fundamentally sound BB credits, including South Africa, Paraguay, and Brazil as well as higher quality countries including Peru, Uruguay, and the Philippines. The fund’s corporate credit allocation and modest local debt exposure did not materially impact absolute returns during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2022-07.pdfJune, 2022
The Lazard Emerging Markets Total Return Debt Fund lost -6.97% (net of fees and in AU dollar terms) during June 2022. In the trailing 12-month period that ended 30 June 2022, the Fund declined -20.38% (net of fees and in Australian dollar terms) compared to the -21.02% loss for the broader asset class. Sovereign credit exposure with a bias towards BB and B rated issuers was the main detractor from absolute returns. The hard currency index was down over 21% during the period and high yield was down over 23%.
On a bottom-up basis, modest long sovereign credit positions in Russia and Ukraine were the most notable detractors. To a lesser extent, the portfolio’s corporate credit exposure detracted from performance. The most notable detractor within this segment of the portfolio was small exposure to the Chinese property sector. The portfolio had limited exposure to local debt during the period, so the performance impact of these positions was relatively muted. Portfolio hedges, mainly in put options on the euro, provided some cushion to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2022-06.pdfApril, 2022
Emerging markets debt continued to be hit by rising Treasury yields and widening credit spreads in April, causing the blended asset class to decline 5.81% and bringing the year-to-date decline to 13.57%. The Lazard Emerging Markets Total Return Debt Fund down -5.81% (net of fees in AU dollar terms) in April 2022, bringing the year-to-date loss to -12.37%.
The main drivers of the absolute decline during the month were consistent with where risk was allocated—sovereign and corporate credit—partly offset by fund hedges. In sovereign credit, diversified exposure across both investment grade (e.g., Panama, Peru, Uruguay) and high yield (e.g., Egypt, Brazil, South Africa) detracted consistent with the nearly 6% decline in emerging markets sovereign credit in the month. Similarly, the fund’s roughly 20% corporate credit allocation detracted from absolute returns commensurate with the roughly 2% loss in emerging markets corporate credit. These losses were partly offset by hedges intended to manage the fund’s overall risk profile consisting of a short euro option position and short risk credit default swaps positions in Saudi Arabia and Qatar.
We are pleased to confirm that all changes outlined in the Supplementary PDS for the Fund dated 23 February 2022 have now been completed including the withdrawal from the Underlying Fund and the introduction of the +/-0.30% buy/sell spread. These last changes follow the reduction in the Management Costs from 0.94% p.a. of the Fund’s Net Asset Value (NAV) to 0.84% p.a. of the NAV and the removal of the Performance Fee. The Fund will now also only distribute an amount equal to the taxable income of the Fund, if any, annually, as at 30 June each year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2022-04.pdfSeptember, 2021
The Lazard Emerging Markets Total Return Debt Fund was down slightly in absolute terms in the third quarter of 2021 but significantly outperformed the blended asset class. Amid a nearly 2% drawdown in the asset class, the fund preserved capital, registering a shallower decline of 1.63% (net offees) during Q321.
Throughout the third quarter, we deployed roughly 80%–90% ofthe fund’s risk budget, with a focus on hard currency debt. Consistent with the risk allocation, hard currency debt was the primary driver of performance. Within the fund’s hard currency allocation, we emphasized high yield sovereign debt and shorter-dated corporates for their attractive carry profile. During the quarter, we also added longer dated investment grade sovereign credit—largely through attractively priced new issues—to take advantage of attractive carry in steep yield curves in certain countries. This marked the first time in several quarters that we held meaningful exposure to investment grade and the decision proved beneficial. We subsequently rotated out of much of the investment grade exposure following the solid outperformance
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2021-09_en.pdfJune, 2021
The Lazard Emerging Markets Total Return Debt Fund returned 1.56% (gross offees) in the second quarter but did not fully participate in the market rally due to a lower interest duration and a generally more conservative risk stance early in the quarter. On a year-todate basis, the strategy remains comfortably ahead of the broader asset class, with a gain of 0.78% (gross of fees) versus a negative return for the blended asset class.
We began the second quarter using roughly 60% of the strategy’s risk budget which we increased to around 90% by the end of the period. Most of the strategy’s gains during the quarter were driven by hard currency debt, which is consistent with the allocation of risk. Specifically, hard currency sovereign exposure accounted for around half of the strategy’s positive performance. Over the course of the quarter, we increased the strategy’s net sovereign credit exposure from less than 20% to around 50%. At the start of the quarter, the exposure was entirely in high yield with an emphasis on shorter maturities diversified across a broad range of BB and B countries. We added exposure to countries such as Brazil, South African and Dominican Republic, while extending further out on sovereign credit curves, in order to position the strategy to potentially capitalize on the broad-based improvements we are seeing and attractive valuations. We also added longer dated investment grade credits to capture attractive carry in countries with steep yield curves. Consistent with our highly diversified allocation to sovereign credit, bottom-up contributors to performance were also diversified.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2021-06_en.pdfApril, 2021
In April, the Lazard Emerging Markets Total Return Debt Fund gained 0.26% (net of fees). The fund’s conservative positioning has served the fund well thus far in 2021, helping to preserve capital amid a drawdown in the asset class. On a year-to-date basis, the fund has fallen 0.73%.
The material outperformance in 2021 has been largely a result of our decision in late 2020 to hedge the fund’s US interest rate duration exposure. Although the duration hedge weighed on performance in April, the position has contributed to absolute performance this year, and the benefit is even greater when compared to the index. The modest gains for the fund in April were driven by credit positions where the fund’s exposure is in shorter-dated high yield sovereigns and corporates diversified across a broad range of countries and issuers. Other than fund hedges, there were no material detractors from performance in April.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2021-04_en.pdfDecember, 2020
The Lazard Emerging Markets Debt Total Return Debt Fund climbed 7.1 % in the fourth quarter (net of fees) , bringing the fund's performance for 2020 to 13.6%. The fund's nearly double-digit return for the year was well ahead of the 4.02% gain on the asset class. We continued to run close to the strategy's full risk budget throughout most of the fourth quarter with an emphasis on high yield sovereign credit while increasing exposure to local currencies.
Both segments of the asset class earned strong returns during the quarter and were the key drivers of performance. Sovereign credit accounted for around 40% of the strategy's return while local currencies accounted for around 35%. The strategy's short-dated corporate exposure also performed well. In late October, we increased strategy hedges ahead of the US election that expired out of the money and cost the strategy less than 20 bps but would have provided insurance against the potential for an adverse outcome.
Consistent with the diversified approach we have taken with the strategy's high yield exposure, no single issuer was a major driver of performance key positions in PEMEX, Angola, Nigeria, Turkey, and Ukraine, among others, all contributed nicely to performance. The only notable detractors in sovereign credit were stressed positions in Sri Lanka and Lebanon. In Sri Lanka, bond prices fell to levels reflecting market expectations that the country may require some form of debt reprofiling, but we maintain conviction that the country will achieve debt sustainability if growth rebounds as we expect. In both Sri Lanka and Lebanon, we believe the low dollar prices on bonds are overly pessimistic and offer greater upside potential than downside risk at this stage.
In local currencies, both low yielders such as China and the European currencies, and high yielders such as Mexico, Indonesia, Russia, and India contributed with no material detractors. The substantial outperformance this year has been a result of both defensive positioning heading into the crisis and shifting to offense as markets bottomed. We came into 2020 using roughly half of the strategy's risk budget and began aggressively adding risk in late March following the announcement of the US Federal Reserve's bond buying program. We began gradually adding risk by unwinding strategy hedges and emphasizing higher quality investment grade sovereign credits that we believed were in a strong balance sheet position to weather the crisis.
By late April, the strong fundamentals of investment grade countries were again reflected in valuations and we began rotating down in quality. This proved prescient, as high yield external debt has since led the recovery earning returns well into the double digits. Through the end of the third quarter, we continued to deploy nearly all of the strategy's risk budget with a strong emphasis on hard currency debt. As high yield sovereign valuations continued to compress, we began reducing exposure in favor of local currencies. Currently, around 40% of the strategy's risk budget is allocated to local currency debt, close to the highest levels in the strategy's 10-year history. With valuations not far off record lows and reduced headwinds from dollar strength, currencies stand to benefit significantly from the upturn in global growth. Much of the strategy's currency exposure is through options and will thus further increase on a delta-adjusted basis should currencies continue to perform well, as we expect.
The one area that detracted from performance on the year was distressed sovereign credit, with positions in Lebanon, Sri Lanka, Argentina, Ecuador and Venezuela all weighing on performance. In general, these positions weighed on performance mainly during the first quarter sell-off when bond prices fell well below our expected recovery values. Although, Argentina and Ecuador restructured at higher levels, the strategy still sustained losses in these names.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/LazardEmergingMarketsTotalReturnDebtFund_FactSheet_2020-12_en.pdfticker: LAZ0023AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
Right sidebar -> Fact Sheet
manager_contact_details: Array
asset_class: Fixed Income
asset_category: Bonds - Emerging Market Debt
peer_benchmark: Fixed Income - Bonds - Emerging Debt Index
broad_market_index: Global Aggregate Hdg Index
structure: Managed Fund
fund_features:
Lazard Emerging Markets Total Return Debt seeks to achieve its investment objective and produce investment returns by pursuing a core debt strategy, with an emerging market focus, by gaining exposure to a diversified portfolio comprised primarily of: • bonds and other debt securities, which are issued by emerging market companies or which are issued by governments, government agencies or supranational bodies of emerging market countries, or which are denominated in emerging market currencies or backed by emerging market debt. These debt securities may have a fixed or floating interest rate and may be investment grade (i.e. rated BBB or above by a ratings agency), non-investment grade (rated below BBB) or unrated, and/or • derivatives including but not limited to: credit default swaps; forwards; interest rate swaps; options on foreign exchange; and swaptions. The Fund aims to provide a risk -adjusted total return from income and capital growth. It is a benchmark unaware fund with the ability to invest across the emerging market debt universe.
- Manager Address : Lazard Asset Management Pacific Co.
- Phone : 1800 825 287
- Website : https://www.lazardassetmanagement.com/au/en_us
- Contact Email : contact.AU@lazard.com
- Contact Page : https://www.lazardassetmanagement.com/au/en_us/about/contact-form