Evli Emerging Markets Credit

Long-term fixed income fund that invests in the emerging markets with both low and high credit ratings

NAV
22.09.2022
Return %
Year-To-Date
Return %
1 y
Return % p.a.
3 y
Return % p.a.
5 y
Return % p.a.
Since start
76.148 -15.88 -17.02 -3.43 -2.12 0.38
NAV
22.09.2022
Return %
Year-To-Date
Return %
1 y
Return % p.a.
3 y
Return % p.a.
5 y
Return % p.a.
Since start
103.423 -15.88 -17.02 -3.43 -2.12 0.38
NAV
22.09.2022
Return %
Year-To-Date
Return %
1 y
Return % p.a.
3 y
Return % p.a.
5 y
Return % p.a.
Since start
93.382 -15.60 -16.64 -2.99 -1.69 -1.27

Risk

4/7

Morningstar

3/5

Recommended Investment Horizon

4 years or more

Administrative fees

1.00 % p.a.

Suitable for investors

  • who wish to benefit from the growth potential of the emerging economies
  • who wish to diversify their investments into corporate bond markets with returns higher than those of government bonds
  • who want to invest responsibly and take into account not only economic analysis but also environmental, social and good governance (ESG) factors.

Invest

min. 1 000 € or 50 €/month

Investment Policy

Evli Emerging Markets Credit Fund is a corporate bond fund that invests in bonds primarily denominated in US dollars or euros and issued by companies or financial institutions that operate in the emerging markets. The investments will be made in bonds with both higher (Investment Grade) and lower (High Yield) credit ratings. The average credit rating of the fund will be at least B- or a classification with a corresponding risk level.

The fund’s geographical investment area covers the emerging markets in Asia, Africa, Eastern Europe, the Middle East and Latin America. The fund hedges the currency risk associated with non-eurodenominated investments.

 

The portfolio is managed by

Juha Mäntykorpi

Investment Objective and Risks

The aim is to achieve a return that, in the long term, exceeds the benchmark return. The expected return and risk of the fund are higher than those of a fund that invests solely in developed markets government bonds.

The average duration of the fund's fixed income investments is typically 3-7 years.

The fund’s investments carry a credit risk

Credit risk originates from a bond issuer’s ability to repay the bond’s coupons and capital on the maturity date. In the fund’s investments, the default risk arising from an individual issuer is reduced by diversifying the investments among various issuers. The risk premium (credit spread) required by investors varies during the bonds’ time outstanding according to the market conditions and factors related to individual issuers. As the credit risk grows, the values of the bonds in the portfolio decrease and vice versa. Poorer credit-rated High Yield bonds, in particular, carry a significant credit risk.

The fund’s value is affected by interest rate risk

A decrease in interest rates raises the value of the fund, while an increase reduces the value of the fund. Interest rate risk may be measured with the average time remaining until maturity (duration). Interest rate risk indicates how sensitive the value of the fund is to changes in interest rates. Long-term fixed income funds are much more sensitive to interest rate movements than money market funds. The value of the fund may fluctuate heavily if there are substantial changes in interest rates.

Monthly review

31.08.2022

After a very volatile July, August was clearly a better month for emerging market corporate bonds. The US 10-year interest rate rose approximately 54 basis points, but credit spreads tightened 44 basis points simultaneously. This movement was the main driver of the market, and in terms of performance, it was most favorable for high yield investments.

The fund’s return was 0.83%, while the return of the benchmark index was -0.04%. The very good month and outperformance of the fund was mainly due to an overweight in high yield investments and relative underweight in duration. However, company selection of the fund was successful overall. The fund benefitted especially from investments in the Consumer, Utilities and Financial sectors. Also, Mexican and Southeast Asian investments outperformed the benchmark. Relative underperformers in August were individual investments in China and Chile.

Volatility of the market will most likely continue even though August was calmer than its predecessor. Recession fears, tight monetary policy and high inflation are causing nervousness among investors. Treasury yields will also remain a key driver in the short- to medium-term performance of this USD-denominated asset class. The fund’s yield was 6.69% and duration 4.39.

Fund facts

Type of fund Corporate bond fund investing in emerging markets (UCITS)
Investment activity began 10.10.2013
Benchmark index J.P Morgan CEMBI Broad Diversified EUR-hedged
Profit distribution Fund-units are divided into A and B units. Profit share of at least 3% is distributed on A units annually.

Responsibility and consideration of sustainability factors

Sustainability information in accordance with Articles 6 and 8 of the EU SFDR regulation 2019/2088 (sustainability‐related disclosures in the financial services sector).

The fund promotes environmental and social characteristics in accordance with Article 8 of the SFDR.

Sustainability risks are taken into account in investment decisions

When building and monitoring the fund’s investment portfolio, traditional financial and other key indicators, such as risk and valuation indicators, and also sustainability risks are taken into account in investment decisions. In addition to the analysis made in connection with investment decisions, the sustainability risk is managed with the exclusion of certain sectors and/or companies. When realized, material sustainability risks can affect the financial performance of the fund’s investment instruments, and therefore the fund’s return.

Excluding certain sectors and/or financial instruments from investment can reduce the fund’s sustainability risk. It can, however, increase the fund’s concentration risk. A potential increase in concentration risk, taken in isolation, may lead to greater volatility and increase the risk of loss.

Environmental and social characteristics

In addition to other characteristics, the fund promotes environmental and social characteristics in accordance with Evli's Principles for Responsible Investment and requires that target companies observe good governance.

The fund’s target companies are analyzed before an investment decision is made and at regular intervals during the investment period with regard to environmental, social and corporate governance matters, or ESG factors. ESG factors are integrated into the analysis of target companies and their selection for investment by the fund.

Evli has built an internal ESG database based on data produced by MSCI ESG Research and ISS ESG, which it uses to monitor ESG factors. For each fund an ESG score is calculated, reflecting how well the companies a fund has invested in have taken sustainability risks and opportunities into consideration as a whole. The indicators also include company-specific ESG scores and their development, information on any UN Global Compact violations, the company’s reputation risk, carbon footprint and the proportion of fossil reserves. Evli also engages with target companies in accordance with Evli's ownership control principles. Engagement may be motivated by violations of UN Global Compact norms or reasons related to climate goals.

The fund’s carbon footprint and emission indicators are measured and monitored, and a regular scenario analysis is conducted to monitor the attainment of Evli's general climate targets. Evli's goal is to achieve carbon neutrality by 2050 at the latest, and it has set a target of a 50 percent reduction in indirect emissions from investments by 2030, provided that this is possible in the investment environment. The comparison year is 2019. The attainment of the climate targets will be measured using data from ISS ESG and MSCI ESG to monitor the fund’s carbon footprint and intensity, the degree of low-carbon transition, a scenario analysis in relation to the 1.5 degree warming target and the warming ratio associated with the fund.

The EU Taxonomy Regulation defines economic activities that are environmentally sustainable. In order for an economic activity to be considered environmentally sustainable under the EU Taxonomy Regulation it must not, in addition to contributing to one or more environmental objectives, cause significant harm to other environmental objectives mentioned in the Regulation. The “do no significant harm” principle applies only to those investments underlying the financial product that take into account the EU criteria for environmentally sustainable economic activities. The investments underlying the remaining portion of this financial product do not take into account the EU criteria for environmentally sustainable economic activities. The Fund is not committed to making sustainable investments in accordance with the EU Taxonomy Regulation.

Good governance policy

An assessment of the quality of corporate governance is an important part of the assessment of potential investments.

Evli's ownership control principles require that the companies it invests in engage in good governance by complying with the Finnish Corporate Governance Code issued by the Securities Market Association, for example, or corresponding foreign guidelines, which often impose a partial framework on the remuneration models of the invested companies. In addition, Evli's Responsible Investment Team analyses the fund's investments every three months for any breaches of norms (UN Global Compact and OECD’s guidelines for multinational companies). The OECD's guidelines for multinational companies also cover disputes related to taxation. Consequently, such disputes may lead to the exclusion of an investment instrument.

ESG strategy

Various factors related to a company are taken into account when making investment decisions. ESG factors are a key part of risk analysis and investment decisions. Evli's Principles for Responsible Investment and Climate Change Principles establish a framework for its investment activities. Portfolio managers carry out analyses of the companies and their ESG-associated risks. The Responsible Investment Team supports the portfolio managers in their work, and Evli's Responsible Investment Steering Group makes decisions on the framework of responsible investment. Evli also has an internal ESG database which combines the responsibility data of the companies in which investments are made from various data sources.

Our responsibility reporting comprises fund ESG reports, customer-specific ESG reports, and the Responsible Investment Annual Report. Evli also reports on the promotion of environmental and social characteristics in accordance with the SFDR as part of the mutual funds’ annual review.

The Principles for Responsible Investment, the Climate Change Principles and the exclusion consensus criteria apply to all direct investments made by the fund.

The fund can use derivatives or other strategies occasionally, regularly, extensively or not at all. Its key investor information document (KIID) includes information on how often and for what purpose derivatives are used. Such investments are not covered by ESG requirements.

Evli’s Principles for Responsible Investment and exclusion

Evli's Principles for Responsible Investment define the basic standards for norm-based screening and exclusion of companies. Investments are regularly monitored with respect to the UN Global Compact principles. If the target company is found to violate the principles related to human rights, labor standards or the environment or actions against corruption as defined in the UN Global Compact initiative, Evli will engage with the company or exclude it from investments. On the basis of regular monitoring, Evli's Responsible Investment Team will take the necessary measures with respect to companies that are suspected of having violated international laws and regulations. Such companies can either be excluded directly or Evli can engage with them. If dialogue with a company fails or is deemed to be unhelpful, the company may be added to the exclusion list.

In accordance with Evli’s general exclusion principles, manufacturers of controversial weapons (landmines, cluster munitions, nuclear weapons, depleted uranium, chemical weapons and biological weapons) with a 0 percent revenue threshold, as well as tobacco manufacturers and producers of adult entertainment and companies involved in controversial lending (including so called pay-day lenders) with a 5 percent revenue threshold are excluded from the fund. In accordance with Evli’s Climate Change Principles, the greenhouse gas emissions of investment instruments are monitored and investment in companies that raise at least 30 percent of their revenue from the mining of thermal coal, its use in energy production or the extraction of oil sands is avoided. This exclusion may be waived if the company has a clear plan to change its operations. In addition, companies producing peat for energy production are excluded.

Benchmark index and fund responsibility profile

The fund’s benchmark index is a market-based index that does not consider sustainability factors. The benchmark index used by the fund can be found in the fund-specific key investor information document.

Read more about Evli's responsible investing

Downloadable files

Invest

min. 1 000 € or 50 €/month