By Tom Arnold
LONDON (Reuters) - Emerging markets investment manager Ashmore Group (L:ASHM) has defended the strategy of its short duration debt fund which has been clobbered by its exposure to two nations in crisis, Lebanon and Argentina.
Net returns of the Ashmore SICAV Emerging Markets Short Duration Fund are down 3.0% for the 12 months up to the end of January, lagging the benchmark which has added 6.8%, according to the fund's data.
Nearly a quarter of the fund is invested in Argentina and Lebanon debt, with that exposure rising from the same period last year, according to Refinitv data at the end of January, as it has bought bonds hammered by the financial turmoil in those countries.
It has a weighting of 15% in Ecuador, which last year was roiled by protests, the data showed.
"There's no change to our investment focus," said Jan Dehn, Ashmore's head of research.
"The short duration fund is a fund specifically designed to take account of the fairly regular occurring bouts of volatility in EM (emerging markets). The fund has very, very short duration bonds, so buying bonds where we have a very short horizon until final repayment."
The strategy allowed the fund to benefit from a high yield and a recovery in the bond price, he said, adding that the fund had performed better than rivals since 2014 despite recent volatility.
Over the past three years, the fund returned 2.8% compared to a return on the benchmark of 4.2%. However, since its inception in 2014, the fund has outperformed the benchmark with returns of 6%.
Ashmore, which in total has about $100 billion assets under management, has attracted attention in Lebanon for accumulating more than 25% of the $2.5 billion of sovereign debt maturing in 2020, including $1.2 billion maturing on March 9, according to sources citing Bloomberg News data up to the end of 2019.
Asset managers have come in the cross hairs after months of public protests in Lebanon against mismanagement and corruption that have ramped up the pressure on the government.
Ashmore declined to comment on its stance in Lebanon and its investment activity there or in Argentina.
Lebanon said on Tuesday it had appointed Lazard as a financial adviser, bringing it closer to a widely-expected debt overhaul, which some investors fear could mean losing as much as 80% of their investment.
Gustavo Medeiros, Ashmore's deputy head of research, said data for the last 200 years showed when an emerging market government defaulted on its debt, investors on average got around 69% of their money back.
"Even if one or two of these stories don't play out according to what we're planning and you end up suffering, say a massive 5% loss on one of these stories you still have another 10% yield," he said. "Most likely over a cycle we will out perform."