Morley launches emerging market local currency bond fund

Morley Fund Management via Aviva Fund Services has launched the Aviva Morley Emerging Markets Local Currency Bond Fund targeted at European and UK institutional and retail investors.

The fund aims to capitalise on narrowing yield spreads between local currency emerging market bonds and the developed bond markets.

The fund manager, Kieran Curtis believes that investors’ interest is shifting towards investing in local market currency as this sector still offers high real returns.

“Supply of dollar and euro denominated government debt has fallen leading to yield compression and this has caused investor interest to shift. Demand for local currency bonds is strong and growing. This is fast becoming a new global asset class.

“I believe investing in local markets offers investors attractive high nominal and real yields with opportunity for currency appreciation. This fund is designed to provide investors with access to fixed income duration with high potential returns that are not correlated with traditional fixed income and equity markets thus diversifying risk,” he said.

The rationale behind the fund is reinforced by recent industry research. A survey conducted by Emerging Markets Traders Association showed that countries with improved economic fundamentals, which have allowed them to build up significant financial cushions against external shocks, have been issuing more local-currency debt while decreasing their reliance on foreign-currency bond issues.

Commenting on the research, fund manager Kieran Curtis said over 60 per cent of trades now occur in local currency and issuance reflects this shift also.

Benchmarked against the JPM GBI-EM Broad Diversified Index, the fund aims to achieve capital growth and income by investing in local currencies and bonds of issuers in emerging markets.

Commenting on the launch Mark Watts Head of Global Fixed Income at Morley said: “This further underlines Morley’s commitment to introducing innovative funds to the market place. The Aviva Morley Emerging Markets Local Currency Bond Fund adds to Morley’s strong product stable and good track record already achieved in Emerging Market debt and Emerging Market equity funds.”

The fund is a sub-fund of the Luxembourg domiciled Aviva Morley SICAV and is available for sale in the UK and other European countries.