Investment Adviser:

NFD Aureus Invest d.d.

(August 2013)


How has the Fund performed recently compared to its peers and are there any particular stocks or areas where the Fund is performing well?

The Fund has performed in line with its benchmark over the last few months and it seems that our enhanced indexing strategy is working well.


You took over the investment adviser role for the Fund at the end of last year. What changes have you made to the Fund portfolio and its investment strategy since then and why?

After taking over the investment adviser role we adjusted the portfolio with our enhanced indexing strategy and expectations for the emerging debt market.


Could you explain a bit about your investment and stock selection process? Is there anything unique in your approach that sets you apart from other asset management companies?

Our enhanced indexing strategy is based on a strong quantitative approach combined with thorough fundamental analysis. We use mixed integer quadratic programming and stratified sampling models to construct the passive part of the portfolio while adding value with bottom–up selection of fundamentally undervalued securities, as well as active top–down analysis of the global environment. We believe this approach will in the long-term generate above average results on a risk adjusted basis.


For investors looking at adding bonds to their portfolio of investments, what advantages does holding EM bonds have compared to holding developed market bonds?

Emerging market debt has a relatively low correlation with other asset classes, and thus offers diversification benefits. In addition, emerging markets are less efficient than developed markets and there is a greater chance of generating extra returns. Emerging market debt has historically outperformed other fixed income classes and we believe that trend will continue due to favourable fundamentals.


Surely there are greater inherent risks in EM bonds than developed market bonds. How can these risks be avoided or minimised?

Emerging markets are riskier than developed markets but potential returns are also more attractive. Emerging markets bear a higher risk due to lower liquidity, relatively undeveloped regulation, and higher political and economic uncertainty. Specific individual country risk can be minimized with adequate diversification. However, risk drives returns and thus our strategy is not to avoid risk but rather to maximise return per unit of undertaken risk.


Many investors still see Latin America as the place to invest if they want EM debt. Do you agree with that approach or are there any other EM debt markets offering as good, or potentially even better, opportunities?

We agree that Latin America offers attractive investments in terms of emerging market debt, but other parts of the world such as Eastern Europe and Emerging Asia also provide interesting opportunities that should not be ignored.


The number of EM countries offering debt is also continuing to grow. While this obviously provides more choice, has it meant more quality EM debt on offer or are there some countries whose debt would be better avoided?

A wider stock universe provides more opportunities and subsequently greater potential to add value through stock selection. However, some countries, such as Greece and Cyprus, are too risky. We plan to avoid investments in those countries.


EM corporate debt has become much more attractive among investors in recent years because of its relatively good yields and the growing creditworthiness of companies in emerging markets. Are EM corporate bonds now a better investment bet than EM sovereigns?

Emerging market corporate bonds have been one of the fastest growing global fixed income asset classes over the past few years and account for a significant part of the global bond market. Both sovereign and corporate bonds have their pros and cons that must be considered in any security selection process. It is wrong to say that sovereign bonds are better than corporate or vice–versa. Both categories have advantages and disadvantages which can be exploited using thorough analysis to generate above average performance on a risk-adjusted basis.


EM corporate bonds are known, however, to be vulnerable to periods of risk aversion and are often among the first assets to suffer when sentiment turns sour. What investment strategy do you use to counter this?

We are aware of specific risks inherent in emerging corporate bonds and their sensitivity to changes in global risk tolerance. To prevent significant losses when sentiment turns negative we limit the weight of corporate bonds in the portfolio. We also restrict our investment universe to bonds from high quality issuers.


Some of the Fund’s investments are made in local currency papers. How do you deal with the inherent currency risk involved in this?

The best way to deal with local currency risk is proper diversification. However, our goal is not to minimize local currency risk but to achieve optimal exposure.


How do you see the EM debt market developing over the next six months?

Over the next six months the performance of the EM debt market will mostly depend on changes in the US Federal Reserve’s monetary policy. We believe that the market has overreacted to recent speculation on the Federal Reserve’s tapering of monetary stimulus sooner than expected. Consequently, current valuations mean there are attractive opportunities in EM bond markets despite possible changes in monetary policy and the weakness of the global economy. Some emerging economies are facing difficulties as they struggle to improve fundamentals, but in the foreseeable future, growth in most emerging economies is still expected to exceed that in the developed world. Moreover, reduced growth expectations could increase the probability of upside surprises in emerging economies. But market volatility has returned and will most probably remain elevated due to uncertainty about when the US Federal Reserve will pull back on monetary stimulus.


IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17th December 2010 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.