Long Duration EM Credit for LDI Portfolios

MINDSHARE

William C. Slaughter

William C. Slaughter

Long Duration EM Credit for LDI Portfolios

January 31, 2019

 

Long Duration Emerging Market Bonds as a Liability-Hedge Asset:

An Idea Whose Time Has Come for Liability-Driven Investors

Summary

Recent market developments, along with tax reform and higher Pension Benefit Guaranty Corporation premiums, make conditions ripe for defined benefit pension plans to increase fixed- income allocations and pursue long duration fixed-income strategies driven by their liabilities. Long duration USD emerging market bonds should be an essential component of this reallocation, reflecting the numerous advantages of long emerging market bonds versus long corporates:

  • Hedges liabilities effectively,
  • Provides higher yields and stronger returns than alternatives,
  • Expands the credit issuer universe and investable opportunity set,
  • Diversifies exposure to U.S. corporate credit risks as U.S. credit cycle peaks,
  • Similar or better default performance versus comparably rated U.S. corporates,
  • Asset class underrated and underowned relative to fundamental credit risks, and
  • Adds excess return to hedging portfolio while diversifying and reducing overall

 

To download the full PDF version of the White Paper, click here: 2018-11 LDI White Paper 

 

©2019 Northwest Passage Capital Advisors LLC. All rights reserved

2019-01-31T14:13:52+00:00 By |