Emerging Markets Inflation-Linked Debt | Capital Group

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INCOME AND PRESERVATION

Emerging Markets Inflation-Linked Debt

Vehicle: Separate Account

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Overview

Objective: Seeks to provide global inflation protection by predominately investing in linkers and currencies in developing countries.

  • Strategy inception date: 2007
  • Assets in strategy (millions): $191.3
  • Benchmark: Emerging Markets Inflation-Linked Debt Index
  • Currency (%)
    • Local currency: 80–100
    • USD allocation: 0–20
  • Tracking error estimate (bps)*: 250-450
  • Excess return estimate (bps)*: 75–125
  • Minimum account size (millions):
    • Separate Account: $100
  • Invests in:
    • Emerging markets debt
      • Nominal
      • Inflation linked
  • Sources of excess return estimates (%):
    • Country allocation: 70
    • Security selection: 15
    • Currency exposure: 15

Approach
  • While inflation-linked debt has a particular set of dynamics that drives investment returns, assessing the factors that influence these instruments still relies on fundamental research and analysis of economies and sovereign credits
  • Research is the cornerstone of Capital Group’s investment process. The analysis of sovereign credits and their respective economies is the responsibility of Capital’s sovereign credit analysts, who work with both regional macroeconomic analysts and equity analysts in developing an investment view on a sovereign credit
  • The credit analysts assess both macroeconomic and microeconomic fundamentals using the many resources within the Capital organization, which enables them to cross-reference and corroborate their own work. In a world where the economic activity of one economy can be significantly influenced by the growth of another economy halfway around the world, analysts at Capital can access the work of their peers in building an investment thesis that reflects global influences as well as local dynamics
  • The Emerging Markets Inflation-Linked Debt investment team consists of two managers with a median of 25 years of investment experience. The managers have independent sleeves of the portfolio and invest based on their highest convictions
  • Although the managers have the ability to exercise independence in their decision-making, they work together as a team, incorporating the output from the analyst team with their own analysis and convictions. The result is a diversified portfolio of high-conviction investments that reflect the best thinking of an experienced team of both investment analysts and portfolio managers
  • The preferred index for our EMD inflation-linked mandates is the Barclays Emerging Markets Tradable Government Inflation-Linked Bond (EMTIL) Index, which caps the largest markets at 25% and has a minimum representation of 5% for smaller markets. This index best represents the diversified nature of the portfolio
  • Inflation-linked bonds are local currency instruments, and the managers do manage the currency exposures. Currency hedging generally carries a certain cost that must be weighed against the potential for loss from maintaining the exposure. The managers draw on the work of our sovereign analysts as well as our global currency analysts in making decisions concerning currency hedging

History of Fixed Income at Capital Group

We began managing fixed-income assets for institutional clients in 1973, and Capital Fixed Income Investors has $284.3 billion in assets under management as of June 30, 2017. Capital has more than 20 years’ experience investing in emerging markets. We began investing in emerging markets debt in 1991, had our first dedicated emerging markets debt account in 1994, and established a global high-yield strategy that combined emerging markets and U.S. high-yield debt in 1998.

 


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This material is designed for use solely by Qualified Purchasers, institutional investors and consultants. It may not be disseminated to or used by individual plan participants or retail investors.

The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute.

All data as of June 30, 2017, unless otherwise specified.

Returns are in USD. Periods greater than one year are annualized. Returns reflect the reinvestment of dividends, interest and other earnings.

Composite returns reflect the Capital Group Emerging Markets Debt (Inflation-Linked) Composite.

Composite returns are preliminary and net of withholding taxes on dividends, interest and capital gains. Actual withholding tax rates vary according to the country of denomination and tax status of each portfolio.

Composite net returns are calculated using the current highest management fees for institutional investors. Actual investment returns net of management fees may differ depending on, among other things, the applicable fee schedule and portfolio size.

Composite risk characteristics are preliminary and gross of management fees. The analysis is based on monthly data, and periods greater than one year are annualized.

Portfolio reflects Capital Group Representative Emerging Markets Inflation- Linked Debt Portfolio.

Cash & equivalents include short-term securities, accrued income and other assets less liabilities.

Emerging Markets Inflation-Linked Debt Index reflects Bloomberg Barclays Emerging Markets Tradable Government Inflation-Linked Bond Index (Unhedged). Source: Bloomberg Index Services Ltd.

Each index is unmanaged.

Portfolio characteristics index values reflect PolyPaths analytics. Data for the portfolio and index use PolyPaths analytics engine calculation assumptions.

Totals may not reconcile due to rounding.

Securities offered through American Funds Distributors, Inc.

*Capital is an “active manager” that creates portfolios by selecting securities using fundamental research. The estimated excess return and tracking error numbers, shown gross of management fees, are based on a number of factors including our investment process, historical results and historical market conditions. We cannot provide any guarantee with respect to results or preservation of assets. The estimates provided should not be considered an assurance or guarantee of the risk or return of any portfolio or impose any liability on Capital.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing.