Reasons why: Emerging market debt

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1 For professional investors and financial advisers only not for use by retail investors Reasons why: Emerging market debt June Emerging market (EM) valuations stand out Yield (%) EM hard currency (HC) Sovereign EM local currency (LC) Sovereign Developed market (DM) Sovereign EM HC Sovereign: JPM EMBI Global Diversified Index; EM LC Sovereign: JPM GBI-EM Global Diversified Index; DM Sovereign: JPM GBI Global Index Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are reflected. Individuals cannot invest directly in an index. Past performance is not a guide to future results. Source: JP Morgan, 4 April For illustrative purposes only Emerging market debt offers an attractive solution in a yield starved world Brett Diment Head of Global Emerging Market Debt Brazil BB Real yields should cushion against potential FX weakness if DM yields rise Russia BBB- S. Africa BBB- Indonesia BB+ Peru A- Colombia BBB+ India BBB- Turkey BB+ US AA+ Japan A+ UK AA Germany AAA 1. Bloomberg 10 year consensus nominal forecasts bond are yield used (%) for 2017 CPI Real (consumer yield (%) price inflation). 2. Standard & Poor s credit ratings are expressed as letter grades that range from AAA to D to communicate the agency s opinion of relative level of credit risk. Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. The investment grade category is a rating from AAA to BBB-. Source: S&P Local Currency Debt Rating, Bloomberg, 4 April For illustrative purposes only. Mexico A Reasons why series Page 1 of 6

2 There has been an improvement in EM currency 3valuations Average real effective exchange rate in EM (ex-china, 2010=100) Jan 95 Jan 98 Jan 01 Jan 04 Jan 07 Jan 10 Jan 13 Jan 16 The correction in EM currencies is similar to the correction seen during the Asia crisis when EM currencies generally changed from fixed to floating exchange rates Past performance is not a guide to future results. Source: Citigroup, BIS (Bank for International Settlements), 31 December GDP weighted index of 14 emerging market countries Note: EMFX (emerging market foreign exchange rate) For illustrative purposes only Our investment process We focus on the entire EM debt universe to maximise the return potential and minimise risk. We conduct comprehensive country research, set in the context of global economic developments, which forms the foundation of our investment process. We look at factors such as: Key macroeconomic variables The political environment Fiscal and monetary policy developments and major risk. This is coupled with analysis of technical market indicators such as: The nature of instruments Relative value Liquidity Demand and supply imbalances. 4 Emerging market resources London Budapest São Paulo Singapore Jakarta Hong Kong Bangkok Kuala Lumpur Sydney Combined emerging market debt and equity expertise Local presence, with over 80 EM investment professionals worldwide Over $90bn in EM assets, with $11bn in EMD Over 80 countries and 1,000 companies researched Source: Aberdeen Asset Management, 31 March Exceptional depth and breadth 5China is of far greater importance for commodities than the US China is the world s largest consumer for many commodities, and its consumption dwarves that of the USA. Copper Coal Aluminium China 50% US 8% Rest of world 42% China 50% US 10% Rest of world 40% China 54% US 9% Rest of world 37% Nickel Iron ore Zinc China 48% US 9% Rest of world 43% China 47% US 2% Rest of world 51% China 47% US 7% Rest of world 46% Source: BP Statistical Review, World Steel Association, China Customs, Bloomberg, January Reasons why series Page 2 of 6

3 Our strategies $10.9bn in assets under management Source: Aberdeen Asset Management. 31 March 2017 EMD Plus invests in hard currency sovereign, quasi sovereign and corporate bonds, local currency sovereigns and currencies Pooled fund: AG Select Emerging Markets Bond Fund ($1,635m) Benchmark: AG Select Emerging Markets Investment Grade Bond Fund ($94m) JP Morgan EMBI Global Diversified $4,111m EMD Local Currency invests primarily in local currency sovereign bonds and currencies Pooled fund: AG Emerging Markets Local Currency Bond Fund ($183m) Benchmark: JP Morgan GBI-EM Global Diversified $1,842m EMD Corporate invests primarily in hard currency corporate bonds Pooled fund: AG Emerging Markets Corporate Bond Fund ($303m) Benchmark: JP Morgan CEMBI Broad Diversified $828m A EMD Core invests primarily in hard currency sovereign and quasi sovereign bonds No pool fund Benchmark: JP Morgan EMBI Global Diversified $ 1,560m EMD Frontier invests in hard and local currency sovereigns, quasi-sovereigns and corporate bonds and currencies from frontier markets Pooled fund: AG Frontier Markets Bond Fund ($87m) Benchmark: JP Morgan NEXGEM $87m EMD Total Return invests in hard and local currency sovereigns and quasi sovereign bonds (more than 50% government owned) and currencies from emerging market and develop market countries Pooled fund: AG II Emerging Markets Total Return Bond Fund ($30m) Benchmark: Citigroup WGBI US $30m Asian Local Currency invests primarily in Asian local currency denominated bonds Pooled fund: AG Asian Local Currency Short Duration Bond Fund ($173m) Benchmark: iboxx Asia ex Japan Sovereign 1-3y $959 B Asian Diversified invests in hard and local currency sovereigns, quasi-sovereigns and corporate bonds and currencies from Asian countries Pooled fund: AG II Asian Bond Fund ($75m) Vehicle domiciled in US ($20m) Benchmark: Markit iboxx ALBI $166m Single Country invest primarily in local currency sovereign, quasi-sovereign and corporate bonds Pooled fund: AG Brazil Bond Fund ($37m) AG Indian Bond Fund ($153m) Vehicles domiciled in Thailand ($223m), Indonesia ($61m) $475m A $1,188m including off benchmark allocations to EM corporates within our EMD Plus strategy. B $1,506m including allocations to Asian local currency strategy within the Asian Diversified Strategy and single country Thai and Indonesian funds. Source: Aberdeen Asset Management. 31 March 17. Notes: EMD (Emerging Market Debt); EMBI (Emerging Market Bond Index); CEMBI (Corporate Emerging Market Bond Index); NEXGEM (Next Generation Markets Index); WGBI (World Government Bond Index); ALBI (Asian Local Bond Index). Reasons why series Page 3 of 6

4 The investment team Brett Diment (25) (L) Head of Global EMD EMD Sovereign Edwin Gutierrez (21) (L) Head of EMD Sovereign Asian Fixed Income Adam McCabe (16) (S) Head of Asian Fixed Income EMD Corporate Siddharth Dahiya (11) (L) Head of EMD Corporate Sovereign Corporate Kevin Daly (28) (L) Viktor Szabó (16) (L) Andrew Stanners (16) (L) Anthony Simond (8) (L) Patty Cao (5) (L) Imre Tajti (14) (B) Kenneth Akintewe (16) (S) Leong Lin Jing (7) (S) Edmund Goh (7) (KL) Lee Jin Yang (5) (S) Pongtharin Sapayanon (14) (BK) Suhardi Tanujaya (22) (J) Thomas Drissner (14) (S) Jeremy Teng (10) (S) Carol Yuan (10) (SY) Henry Loh (3) (S) Mohammad Hasif (6) (KL) Tai Li-Yian (3) (K) Wendy Tjandra (18) (J) Max Wolman (17) (L) Paul Lukaszewski (16) (L) Kathy Collins (9) (L) Samuel Bevan (5) (L) Henrique Morato (3) (L) Chalermrat Panjawatanakul (3) (BK) Specialised Resources Portfolio Analysts Neil Clayton (12) (L) May Hoang (8) (L) Quant Echo Yang (9) (S) Yulong Wang (1) (L) Dealers Andrew Ng (10) (S) Abel Koh (5) (S) Russell Beer (15) (L) Restructuring & Insolvency Cecely Hugh (10) (L) Product Specialists Karen Bater (32) (P) Helen Winter (20) (L) Experienced, stable team with a broad range of specialist skills Global interaction: Team-based, formal weekly portfolio review and six-weekly strategy meetings Regular meetings with EM equity, global macro and US fixed income teams (-) denotes years industry experience. L= London, B = Budapest, S = Singapore, KL = Kuala Lumpur, BK = Bangkok, J = Jakarta, SY = Sydney Source: Aberdeen Asset Management, 31 March Key features and benefits Established, well-resourced, stable team with deep experience Recognised emerging markets specialist in both debt and equity Long established network across emerging market countries Exploiting opportunities through extensive research in both mainstream and frontier emerging markets Size ensures investment flexibility 32 dedicated EM debt investment professionals Over 80 countries covered in depth Over 300 companies actively covered Over 50 country visits every year ESG analysis on all issuers covered Reasons why series Page 4 of 6

5 Research trips We undertake on-the-ground proprietary research to assess the underlying creditworthiness of the companies in which we invest. We always meet the management of the companies we invest in and keep in regular contact, which helps us build good long term relationships and gives us access to the company even in times of stress. Meeting management and making site visits also gives us a better idea of the drivers of the business and helps us understand their corporate culture. Some of the research trips we have done recently include the below destinations. Turkey Istanbul Russia Moscow Brazil Rio de Janeiro India Delhi Nigeria Lagos Chile Santiago Peru Lima Bangladesh Dhaka Indonesia Jakarta Thailand Bangkok Hungary Budapest Malaysia Kuala Lumpur China Shanghai China Shenzhen Azerbaijan - Baku Argentina Buenos Aires Reasons why series Page 5 of 6

6 PLEASE CONSIDER THE RISKS The following risk factors should be carefully considered before making an investment decision: The value of investments and the income from them can go down as well as up and your clients may get back less than the amount invested Investing globally can bring additional returns and diversify risk. However, currency exchange rate fluctuations may have a positive or negative impact on the value of your investment. Bonds are affected by changes in interest rates, inflation and any decline in creditworthiness of the bond issuer. The fund s portfolio may have significant exposure to bonds that typically have lower ratings. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may not be able to pay the bond income as promised or could fail to repay the capital amount used to purchase the bond. Where a bond market has a low number of buyers and/or a high number of sellers, it may be harder to sell particular bonds at an anticipated price and/or in a timely manner. Contingent convertible bonds can automatically convert into shares or be written down if the financial strength of the issuer falls in a certain way. This may result in substantial or total losses of the bond value. The Fund can use derivatives in order to meet its investment objectives or to protect from price and currency movements. This may result in gains or losses that are greater than the original amount invested. Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. This may mean your money is at greater risk. Performance may be strongly influenced by movements in currency rates. The value of your investment will either rise or fall in response to changes in foreign exchange rates between the base currency of the fund, and the currencies of the securities held by the fund. The Fund may invest directly or indirectly in Chinese domestic securities markets via various channels, including the China Interbank Bond Market (CIBM), which may carry greater risks and, as a result, may incur additional costs and suffer losses. The Fund can use derivatives in order to meet its investment objectives or to protect from price and currency movements. This may result in gains or losses that are greater than the original amount invested. The Sub-Fund s exposure to a single country market, which may be subject to particular political and economic risks, may cause the sub-fund to be more volatile than more broadly diversified funds. Contact details Should you require any further information, please visit aberdeen-asset.com for details of your local Aberdeen representative. Important Information For professional investors and financial advisers only - not for use by retail investors The above marketing document is strictly for information purposes only and should not be considered as an offer, investment recommendation or solicitation, to deal in any of the investments or funds mentioned herein and does not constitute investment research as defined under EU Directive 2003/125/EC. Aberdeen Asset Managers Limited (Aberdeen) does not warrant the accuracy, adequacy or completeness of the information and materials contained in this document and expressly disclaims liability for errors or omissions in such information and materials. Any research or analysis used in the preparation of this document has been procured by Aberdeen for its own use and may have been acted on for its own purpose. The results thus obtained are made available only coincidentally and the information is not guaranteed as to its accuracy. Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make their own assessment of the relevance, accuracy and adequacy of the information contained in this document and make such independent investigations, as they may consider necessary or appropriate for the purpose of such assessment. Any opinion or estimate contained in this document is made on a general basis and is not to be relied on by the reader as advice. Neither Aberdeen nor any of its employees, associated group companies or agents have given any consideration to nor have they or any of them made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document. Aberdeen reserves the right to make changes and corrections to any information in this document at any time, without notice. The funds referenced are Luxembourg-domiciled UCITS funds, incorporated as a Société Anonyme and organised as a Société d¹investissement à Capital Variable (a SICAV). The information contained in this marketing document should not be considered as an offer, or solicitation, to deal in the shares of any securities or financial instruments. It is not intended for distribution or use by any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication or use would be prohibited. The Funds are not registered under the United States Securities Act of 1933, nor the United States Investment Company Act of 1940 and therefore may not directly or indirectly be offered or sold in the United States of America or any of its states, territories, possessions or other areas subject to its jurisdiction or to or for the benefit of a United States Person. No information, opinions or data in this document constitute investment, legal, tax or other advice and are not to be relied upon in making an investment or other decision. Subscriptions for shares in the Funds may only be made on the basis of the latest prospectus, relevant Key Investor Information Document (KIID) and Supplementary Information Document (SID). These can be obtained free of charge from Aberdeen Asset Managers Limited, 10 Queens Terrace, Aberdeen, AB10 1YG, Scotland and are also available on aberdeen-asset.com. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. You should obtain specific professional advice before making any investment decision. Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Reasons why series Page 6 of 6 DH: GB /17