Investors Turn to Emerging Markets Cash, Bonds

Institutional asset managers say investors are looking to emerging markets debt and currency in greater numbers according to Fundfire. That means investors are taking on more risk in exchange for more expected reward. High debt in the developed world and new concerns over the devaluation of the dollar are major factors behind the trend. Managers also say developing nations have more relaxed fiscal spending and monetary policies — additional criteria that make emerging markets debt more attractive for institutional investors. Which major investors are upping with allocations? Fundfire notes:

Among the pension plans looking to emerging markets debt is the San Diego County Employees Retirement Association, which in March made a 10% allocation to the asset class, as reported. Managers are making moves too, including GE Asset Management, which recently increased its holding of emerging markets debt to help benefit from a global economic recovery. And in June, Stone Harbor Investment Partners hired three professionals to expand its emerging markets capabilities.

Investors are compensated for risk as yields on emerging market bonds are above U.S. Treasuries – a major draw. Investors can also gain access to emerging markets by investing in a country’s local debt, thereby gaining exposure to the currency.