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GAM Star Emerging Market Rates

GAM Star Emerging Market Rates is an unconstrained, high-conviction emerging markets (EM) debt strategy, seeking to capture 70% of market upside while avoiding 80% of the downside with less than half the underlying market risk. The strategy uses a macro-based approach to take long and short positions across interest rate, currency or credit markets and has consistently provided superior risk-adjusted returns across cycles, while mitigating downside risk.

Active Thinking Video

In his latest video update, Paul McNamara discusses how factors in major developed markets have had a major influence on emerging market (EM) debt, how EM fundamentals differ from their developed peers and offers his outlook for the asset class.

I think a big reason for the selloff in bonds in the core markets is this idea that we've got a huge amount of debt and huge deficits going forward. Generally, balance sheets in emerging markets are in better shape. I think there's some scope for outperformance on the back of that.

Our Edge

Leading investors

Led by Paul McNamara, the long-standing, multi-award winning team of seasoned investment professionals ranks amongst the leading players in EM debt, both in terms of track records and assets.

Distinct investment style

The team has an extensive track record of value generation, thanks to their active, unconstrained, high-conviction management approach across EM debt asset classes and styles.

Multiple sources of alpha

The team seeks to optimise returns and mitigate drawdown risk by engaging across all principal dimensions of EM debt, from a long, short and relative value angle.

Liquidity profile

Implementation is distinctly focused on relatively liquid sovereign hard and local currency emerging market bonds and derivatives.

Investment Team

Led by Paul McNamara, the fund is managed by the exceptionally stable Emerging Markets Debt team. Since launch of the offshore fund in 2007 and the UCITS version in 2010, the team has consistently delivered on all investment targets.

The team’s extensive background of navigating economic cycles of crisis and recovery in EMD forms the foundation of their process, while a collaborative working style means that each person contributes to both research and portfolio management.

The team also actively leverages off the extensive investment insights and capabilities of GAM’s broader global fixed income teams

We seek to add value by disagreeing with the market and being right
Paul McNamara, Investment Director.
Paul McNamara
Investment Director

Philosophy and Process

Investment Philosophy

The team’s thematic, macro-driven approach is founded on the conviction that developed economies drive emerging market fundamentals, valuations and market technicals and that these global themes should drive country selection and portfolio architecture. At a bottom-up level, the team believes most alpha potential can be unlocked by gearing qualitative and quantitative country research towards identifying and quantifying idiosyncrasies and turning points in economic cycles. The resulting investment views, opportunity sets and positioning may materially deviate from any prevailing market consensus.

Investment Process

Unlike most EM investment processes, the team starts not by analysing emerging markets, but by establishing 3-5 “Big 3”(US, Europe and China) top-down global themes to determine country selection and specific return and risk driver preferences. Extensive bottom-up country research, combined with a proprietary ‘crisis filter’, tests these views and seeks to identify potential country inflection points. These are further refined by considering valuation, technical and country specifics. The process typically results in a medium-diversified portfolio of 30-40 liquid single positions which may represent directional (long or short) or non-directional (relative value) top-down macro or bottom-up country views. Active risk management forms an integral part of decision-making throughout the process, and is supported by independent oversight by GAM’s risk team.

1

Define market backdrop

  • Establish baseline scenarios for US, Europe and China
  • Develop 3-5 top down investment themes
2

Identify strong economic stories

  • ‘Crisis filter’ tests views and flags potential country cycle inflection points
  • Bottom-up research sharpens single country views
3

Determine market valuations

  • A balance of high-conviction opportunities with risk hedges
  • Timing of entry and exit using technical analysis, identified catalysts and realisation timeframes
4

Portfolio construction and risk management

  • Active risk management at portfolio, macro, theme and single position level
  • Ongoing risk oversight by two independent teams

Reasons to Invest

Supportive fundamentals

EM trade and current account balances have rebounded recently and excess growth versus developed markets looks set to re-accelerate, in our view leading EM debt to deliver positive returns and outperform western bond markets.

Compelling valuations

Overall, EM interest rate, currency and credit markets remain cheap.

Relative value opportunities

Marked dislocations across the asset class have and continue to offer the potential for added value, for long only investors as well as embedded short or relative value strategies.

Higher market volatility

After an extended period of subdued volatility, financial markets are set for more normalised price action, offering additional opportunities at the tactical level, as well as putting downside risk mitigation back into focus.

Key Risks

Counterparty Risk / Derivatives

If a counterparty to a financial derivative contract were to default, the value of the contract, the cost to replace it and any cash or securities held by the counterparty to facilitate it, may be lost.

Leverage Risk

Derivatives may multiply the exposure to underlying assets and expose the Fund to the risk of substantial losses.

Credit Risk / Debt Securities

Bonds may be subject to significant fluctuations in value. Bonds are subject to credit risk and interest rate risk.

Interest Rate Risk

A rise or fall in interest rates causes fluctuations in the value of fixed income securities, which may result in a decline or an increase in the value of such investments.

Currency Risk

The value of investments in assets that are denominated in currencies other than the base currency will be affected by changes in the relevant exchange rates which may cause a decline.

Market Risk / Emerging Markets

Emerging markets will generally be subject to greater political, market, counterparty and operational risks.

Capital at risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Our Thinking

Outlook 2024
Outlook 2024: Paul McNamara (Emerging Market Debt)
December 2023

Emerging Market Debt – Looking at yields, and the biggest driver – inflation and policy rates – gives us grounds for optimism

Active Thinking
Active Thinking: Can EM debt step out of the Dollar’s shadow in 2024?
24 November 2023

Following a tough 2022, emerging market debt has fared well so far in 2023, outperforming US government bonds and investment grade credit, particularly as some softer US data weighed on the dollar. Paul McNamara, Investment Director and lead manager on emerging market debt strategies, analyses the key factors affecting the asset class and shares his thoughts on what to look out for in 2024.

Active Thinking
Active Thinking
16 December 2022

At GAM Investments’ latest Active Thinking forum, David Dowsett argues that after a busy week for central banks, we could now be moving into a different era, while Paul McNamara discusses how the situation in the US, Europe and China will shape emerging markets and the longer-term effects of reshoring.

Our Thinking

Fund Information

CONTACT US

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Speak to one of our client directors

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Contacts

Please visit our Contacts and Locations page.

GAM Star EM Rates is a sub-fund of GAM Star Fund p.l.c., registered office at Dockline, Mayor Street, IFSC, Dublin, D01 K8N7, Ireland, an umbrella investment company.

Disclaimer: Past performance is not an indicator of future performance and current or future trends. The indications could be based on figures denominated in a currency that may be different from the currency of your residence country and therefore the return may increase or decrease as a result of currency fluctuations. Capital at risk: all financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Any reference to a security is not a recommendation to buy or sell that security.

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