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Emerging Markets

Emerging Markets Corporate DebtEmergingMarketsCorporateDebt

Table of Contents
Investment Objective
Available Vehicles
Investment Philosophy
Investment Process

Investment Objective

The Emerging Markets Corporate Debt Strategy seeks to outperform the JP Morgan CEMBI Global Diversified Index (the "Index") by +150 bps over a full market cycle.1,2

Senior Portfolio Managers

  • Cathy Hepworth, CFA
    Cathy Hepworth, CFA

    Head of Emerging Markets Debt

  • Aayush Sonthalia, CFA
    Aayush Sonthalia, CFA

    Portfolio Manager, Emerging Markets Debt

Available Vehicles

Separate Account

    

Investment Philosophy

PGIM Fixed Income’s Emerging Markets Corporate Debt investment philosophy is grounded in four beliefs:

1) The ever-changing risk appetite of investors is a primary contributor to both market opportunity and market volatility. We therefore begin our investment process with a comprehensive assessment of the global appetite for risk.

2) Country allocation is a primary determinant of emerging markets portfolio returns. We therefore focus a significant part of our investment process on determining our country views. Our country decision process incorporates our global risk view along with an analysis of a country’s foreign exchange, local bonds, and hard currency bonds from a fundamental, relative value, and technical perspective. We heavily emphasize qualitative factors in our fundamental analysis, as they are often the best predictors of performance.

3) Security selection is also a primary source of alpha generating opportunities. Our philosophy is to seek the widest possible universe of security selection opportunities, guidelines permitting. We analyze sovereign issuers as well as “quasi-sovereign” issuers within the same country. We evaluate opportunities in both hard currency and local currency bond curves based on potential changes in policy rates and inflation outlook. We evaluate corporate issuers, guidelines permitting.

4) Dynamic risk budgeting provides a disciplined framework for investment decision-making and provides important risk management as well. We heavily rely on risk budgeting and management to provide a consistent and disciplined framework for all investment decisions. We develop a broad strategic risk budget for each client portfolio that reflects the client’s long-term objectives and risk parameters, as well as a tactical risk budget that permits us to incorporate our day-to-day views of market risk tolerances and opportunities within the broader strategic risk budget. PGIM Fixed Income’s investment approach seeks to add value primarily through research-based country allocation, security selection, FX, and, to a lesser extent, yield curve management. The Emerging Markets Team’s duration management decisions are made on a country by country basis based on the outlook for central bank policy, inflation, and output gaps.  It is also a function of our assessment of the global appetite for risk, which is Step 1 of our investment process. Yield curve decisions are made with similar considerations.  When we interpret the global appetite for risk as a positive factor (i.e. global investors appear willing to assume more risk), we will tend to express this through slightly more aggressive yield curve positioning.

Investment Process

PGIM Fixed Income implements an actively-managed, four-step decision-making process to construct and manage Emerging Markets Corporate Debt portfolios:

1. Global Backdrop & Portfolio Strategy:
Senior portfolio manager assesses global risk appetite to determine portfolio risk profile and refine portfolio positioning, leveraging firm's resources

2. Country Analysis:
Regional economists evaluate each country from quantitative and qualitative perspective and assign internal ratings

3. Security Selection:
EM corporate portfolio managers/analysts seek to determine best risk/reward opportunities across all regions. Use proprietary tools to highlight relative value opportunities within markets.

4. Risk Monitoring:
Senior portfolio manager/risk manager employ a rigorous process to tightly monitor risk at all levels. Use proprietary tools to verify performance achieved is appropriate for risk taken.

1 There is no guarantee that these objectives will be met.

2 On average, over a full market cycle defined as three to five years.

No risk management technique can guarantee the mitigation of elimination of risk in any market environment.

Source: PGIM Fixed Income as of December 31, 2020.

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For Professional Investors only. All investments involve risk, including the possible loss of capital.

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Any discussion of risk management is intended to describe PGIM Fixed Income’s efforts to monitor and manage risk but does not imply low risk. All investing involves risk, including the risk of loss. Fixed Income securities are subject to certain risks, including credit, interest rate, issuer, market and inflation risk. Foreign and emerging market securities are subject to currency, political, economic and market risks, which may be enhanced in emerging market countries. High Yield securities are lower rated securities that may have a higher degree of credit and liquidity risk. Mortgage and asset-backed securities are sensitive to early prepayment risk, a higher risk of default and may be hard to value and difficult to sell. U.S. government securities may not be backed by the full faith and credit of the U.S.; thus, these issuers may not be able to meet their future payment obligations. With sovereign debt securities, the issuer or governmental authority that controls the repayment of the debt may not be willing or able to repay the principal and/or pay the interest when it becomes due, in accordance with the terms of such obligations. Collateralized mortgage obligations may have unpredictable cash flows that can increase the risk of loss. Public bank loans are subject to liquidity risks of lower rated securities. The use of derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks.

There is no guarantee that any investment strategy will achieve its objective under all market conditions or be suitable for all investors. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.

The views and opinions expressed herein are those of PGIM Fixed Income and are subject to change without notice.

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