TRG’s fixed income and currency strategies offer an attractive yield, diversified non-dollar exposure and alignment with EM growth through investments in local currency EM debt.
Why EM Local Currency Debt?
Over the past few years, the yield pick-up of emerging market over G4 sovereign debt has remained high and within a narrow range of 3.5-4.0% in the 5-year tenor1. Additionally, the asset class has matured, offering investors an opportunity to add value through instrument and market selection, asset allocation and opportunistic investments. The investable universe now exceeds USD 6tn2.
1Source: Bloomberg, TRG Management LP calculations. Data as of June 2017.
2Source: Bloomberg, JP Morgan, TRG Management LP calculations. Data as of August 2016.
The allocation to EM local currency debt by developed market institutional investors has grown but is still low. These allocation levels contrast with the share of EM in global government debt market (20%), global trade (45%) and GDP (35%)3.
3Source: Bloomberg, International Monetary Fund, JP Morgan, TRG Management LP calculations. Data as of August 2016.
TRG utilizes a fundamental, discretionary investment approach.
The investment team combines core active beta management, top-down investment themes and bottom-up investment ideas in different combinations to meet a range of return profiles and investment objectives.
The investment team originally developed a range of EM smart betas to provide an efficient tool for expressing beta decisions in its hedge fund portfolios. TRG Active Beta Management Neutral Portfolios now serve as core building blocks in TRG fixed income and currency investment strategies.
- Utilize the broadest possible range of markets and instruments, including derivatives, to maximize flexibility
- Minimize transaction costs including taxes, access and custody costs
- Enhance liquidity with multiple ways to access markets
The investment team seeks to achieve lower volatility and drawdowns via greater diversification and/or inbuilt hedges.
TRG aims to enhance the returns of the Smart Betas through two key types of investment decisions:
- Adjusting Overall and Asset Level Exposures
- Increasing/decreasing overall portfolio risk depending on our market risk appetite
- Independently increasing/decreasing aggregate portfolio currency and rates exposures according to our view on each asset class based on the market environment
- Directional and Relative Value Investments
- Country specific macroeconomic views expressed via over/underweights in currencies, nominal rates or real rates
- Rate curve trades capturing views on monetary policy and curve shape
- Inflation breakeven and asset swap trades
- Cross asset class relative value trades
- Opportunistic hard currency sovereign or corporate credit investments
Hedging and risk management are used in an effort to dampen volatility and protect the portfolio during periods of market stress.