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Top BlackRock Fund Is Betting Again on Riskiest Emerging Markets

Top BlackRock Fund Is Betting Again on Riskiest Emerging Markets

A BlackRock Inc. emerging-market fund that beat 99% of peers this year by loading up on cash ahead of the March rout, is back in the market for some of the world’s riskiest debt.

Sergio Trigo Paz, who helps oversee the $1.7 billion BlackRock Strategic Funds - Emerging Markets Flexi Dynamic Bond Fund, said he’s bought debt from sub-Saharan Africa and other frontier markets that have proven more resilient.

As the risk of a wave of defaults subsides, developing-nation assets are becoming the “only game in town,” said the London-based investor, warning security selection is more important as global liquidity rises. He bought debt from oil exporters Angola, Gabon, Nigeria, Ghana and the Ivory Coast as crude rebounded to $40 per barrel.

“There’s no quantitative easing available, or just very little, so you get a natural selection in emerging markets,” Trigo Paz said in an interview. “You’re going to get the survival of the fittest, but the good news is that you’re going to get paid for the risk you’re taking.”

On average, cash made up almost a third of his holdings during the first three months of the year, when he warned of the high chances of a global recession. By the second quarter, only 5% was invested in cash as Trigo Paz started trading dollars for currencies from Poland, Hungary, the Czech Republic and Asia. He even added exposure to Latin America’s distressed issuers, Ecuador and Argentina, as they neared restructuring deals.

That strategy has returned 10% this year, outperforming 99% of peers, according to data compiled by Bloomberg.

As the pandemic exposes inequalities in emerging-market nations, Trigo Paz warned that social discontent may become a bigger risk factor for investors.

“In some countries the answer to social pressure would be repression,” Trigo Paz said. “Understanding how the policy reaction functions to social pressure is a key to selection going forward.”

©2020 Bloomberg L.P.