Emerging Markets | European Institutional Masterclass

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  • 42 mins 57 secs

What are the risks when it comes to emerging markets and are they overrated, or perhaps misunderstood? And for institutional investors, why should they look at emerging markets? On the panel to discuss are:

  • William Ledward, SVP Portfolio Manager, EMD, Franklin Templeton Investments
  • Steve Cook, Managing Director, Co-Head of Emerging Markets Fixed Income, PineBridge Investments
  • Simeon Willis, Chief Investment Officer, XPS Pensions Group


European Institutional Partnership

Pan European Sponsors

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Hello, welcome you watching asset tv's institutional master class to meet jenny alice today, looking at emerging markets. What are the risks when it comes to emerging markets and there they overrated, or perhaps misunderstood on for institutional investors ? Why should they look at emerging markets ? Well, these are some of the topics we're going to be discussing over the course of this master class, and i have three experts with me today to discuss, so let me give you their names. We have steve cook, managing director, co head of emerging markets, fixed income, pine bridge investments. Simeon willis, chief investment officer, x. P s pensions group. And william lll, edward senior vice president, portfolio manager. Emerging markets debt, franklin templeton investments. Right, steve, i'm going to start with you and the rural environment we're hearing about trade wars, we're hearing about the strong dollar overall, it doesn't feel like that good and investment environment for a m is that accurate ? At the moment, i think there's obviously been a lot of headlines about certain countries within emerging markets, which seemed to capture the attention but argue that this is a multi faceted asset class just homing in on one or two individual countries and saying that emerging markets are under pressure is not really telling the full story, so people need to be aware that this is an asset classes eighty trillion, eighteen trillion dollars across seventy different countries, everything from double, triple c rated credit, so that there's a lot in there. But the market and a headline writers tend to focus in on a finite number of countries issues and have you about you, sidney, and do you think this is a good investment environment in emerging markets ? Currently, i think we found ourselves in a really unusual place in that we've got highly valued assets across most classic classes, and so emerging markets are without challenges and headwinds. We face a lot of uncertainty, but actually the same is true of all the other asset classes, the institution investors looking to access a cz well so it's more of a relative position that we should be thinking about rather than absolute. And also we should remind ourselves that it's, easy to look back and think that we should have known about risks that then played out. But the reality is you have to face uncertainty is an investor and so that's something that we should be comfortable doing as well on a similar sentiment from you. William, how you facing this environment ? Sir john templeton, who was one of the founders of franklin templeton investments, used to say that the time to buy was at the moment of maximum pessimism. Well, we aren't yet at the moment of maximum pessimism in emerging markets, but the outlook and the sentiment of the market is a lot more pessimistic than it wasa at the beginning of the year. And i think that's a good time to buy there's value now in emerging markets much more value in that we've had for the last five years. Okay, so steve going back ? To what you were saying and this multifaceted approach to emerging market debt, so if you could talk me through some of the factors that are really impacting performance returns, what you're seeing out there, they think one of the big challenges that this is an asset class has very distinct components. We have a us dollar component, we have a local market component, and we have this broad spectrum of assets to try and isolate one particular factor that is driving so returns in emerging market, i think that's very, very challenging, for example, in the in the u s dollar market now emerging market investors need to be much more aware of us treasuries and u s treasury moons. Historically, there was so broad yield and spreads available within emerging markets, you didn't nearly really need to worry about where call rates were because you had such a lot of spread to compensate for the risk. Nah, because spreads in emerging markets a much tighter you need to be much more aware off the broader fixed income markets and and us treasury drivers as well, so isolated in tow. One particular factor that's driving returns all of the asset class have again multifaceted elements to them, which, as an investor you need to be aware ofthe on managed through but let's keep you up at night. What of the risk you're considering ? I think that the main risk in terms of our key research through the trade war impact was happening between the us and china because china is the largest emerging market economy, it clearly has impacts and around sentiment towards emerging markets. But i think one of the that keep us always is really the trade wars offset commodities less so. But really, i think it's, the trade war and general thie impact on potentially diminishing global growth, which is really what we're focused on the moment. Okay, and simeon, what are your thoughts in terms of the strong dollar currency prices that something was the impact ? Is that having on the region ? Also, i guess it's worth remind ourselves what emerging markets are there are there are very diverse mix of different countries and political system, so they range from south america to asia, the middle east, on dh, therefore the factors that affect them a very diverse but there are some consistent themes that feed through the fed tightening has been a key area because of the way those countries finance themselves and how they interact with dollars something of the reserve currency on dh. So we need to be aware of the impact that that will have if the fed timing continues as we expect. But also you got the trade policy that's being that sort of rolled out across the across the country countries being picked off one by one by donald trump's fairly assertive negotiation star on that's great a lot of uncertainty, emerging markets in general, one of the themes they do share is that they often have a large component exports, and so they are vulnerable to protectionist strategies that's how they can go against them on dh so that that's one of the things that we've seen payout this year, andi its vigour of uncertainty with the policies that the us could impose. But we don't know the direction of those negotiations, and we have seen examples of the u s is position turning on a sixpence on dh so that that that could lead a material impact on the direction of these markets and fi william what's what things you pricing and in terms of risk as we're hearing a lot about the trade wars, there's also what's happening in turkey, argentina and a lot of investors are very concerned about contagion, but for you, wear these things top in your mind, or how much do you ? I wonder whether the so called trade wars of that important, the two emerging economies, that they really affect our people's, republic of china and also mexico. But it looks a scif. The on after is going to be re negotiated, so that problem seems to have been going away on the renegotiation isn't actually a major renegotiation. There isn't a very substantial change over what's bean in place for the past twenty years. China is clearly a different matter. What i think is more of concern for us our individual developments in certain countries, elections changes, a government moves to aim or less market friendly governments in some countries. Do you think that all the noise that we talked about that surrounds emerging markets is sort of putting off investors ? I mean, how you finding investorssentiment, steve ? What do you think this is being particularly put off ? Especially obviously some of our is listening investors. They generally seen various classes and seen how e m s over manages through that, where some of the new investors we're looking at am for the first time are definitely going to be put off in terms of outflows that we've seen generically across the asset class. They have not been material during this period of volatility. If you actually look at the countries that have been susceptible, argentina and turkey the's been off spread. Widening we have seen in the markets is pretty much ninety percent coming from those three countries. So those three countries aside, spreads and returns have not bean too different to develop market. So even though there is this sentiment that gm has been selling off aggressively, a finite number of countries, the majority of countries, as we mentioned, asian, middle east, i've been doing very well. Some of the latin american countries have also done very well. So for us, this is more of a a storm in a teacup, if you like more of a sort of like a sentiment, but we don't believe this is materially putting off clients looking this asset classes opportunities as william mentioned it's now actually it's cheapened up material over the last last three, four months or so. So sue me, and then this emerging market risk premium. How much this compare mean, how would you compare this to develop markets then ? Well, yes, it's it's interesting question, because several elements that where people expect to win a premium for investing in these markets in general have more political uncertainty and more currency risk. So currency is one area where people look to harvest premium, but you need to be very cautious about that because the the gates usually volatile, a cz we've seen over the last quarter with our argentine er and thie. Other currencies have been ineffective, such as turkey, so currencies, one angle, but actually in general. You might want to be cautious about the level of currency risk you have with the with these markets because they have the scope to overshadow returns. For instance, in the debt markets on even in the markets, you can find that the currency returns overshadow the impact of the market as well, so you could have a very strong local equity return completely undermined by poor currency returns on dh we've seen a large number of currencies impacted of late in some some in some sense is linked to the perfect timing. So there's a number of aspects you need to think about for bond investment, you could access on dh have a dollar denominated bond the problem there is that's only a very small part of the market, so roughly ninety percent of the market is in local currency. You're missing out on large part of the pie if you if you focus only on that but the challenges for uk and european investors, the currency risk is a material issue that it's very difficult to hedge because of the cost of hedging arose along the extra and so you choose to take the risk and expect to. Win the premium or just step away from that or run a relatively small position and unfortunately think the reality is that most investors will choose to run a small position as a way of controlling that risk. So will you give me example ? How do you manage the currency risk, then how do you approach that for our investors ? We hedge automatically the g seven currencies back into the investors home currency. So for our uk based clients, the dollar, the euro and the exposure is automatically hedge back into sterling that takes a bit off returns from the dollar side. It increases it from the euro size and from the inside we keep the local currency exposure open on just ride the volatility. Local currencies are not a large part of our portfolio, i think it's bean, one of the most overhyped asset classes of the last fifteen years, the volatility of local currency investments is very high. There are some diversification benefits it's true, but in general it's a small part of our portfolio, the most interesting local markets of those which are not included in the mainstream index, which may have much more the level of non resident participation on may have returns which are completely un correlated with what's happening in the big local markets like mexico were in brazil in indonesia. Is this similar piece because i saw, you know, sing along there see you agree with william ? I think obviously local markets has very much been challenged over the last last year or so has the strength of the dollar has has has come back ? Wei we're really looking at being underweight local markets and are blended strategies for very much the reason it's very much the eyes volatility asset class has the potential for the highest returns, but love you until the trade war in the global growth outlook is clearer, then you should be cautious in terms of gm currencies and consequently there am local markets. Well going back to something you said earlier on china, i want to just bring that up because she said it's the largest emerging market economy out there. So i mean looking at that, it said. China's four trillion bomb market faces a refinancing challenge for the next five years on mohr than half the outstanding debt matures, heightening concerns of default risk by some. Borrowers, i mean, does that concern you ? That sort of issue ? Clearly, obviously that the whole de leveraging story in china and the re leveraging story was so assault earlier in there in the decade is over front and center in terms of the risk in china. But our views that seventy percent of all the china banking assets within chinese state owned banks and seventy plus percent of that lending is chinese state owned entities argues that the authorities effectively have control of the economy so they can keep this default under control. Obviously, in terms of the measures they're taking at the moment terms of liquidity into banks, we believe that's aimed at trying teo increasing liquidity in the system, avoid some of these defaults. Our basic underlying in china is the authorities have the economy under control and can manage this potential credit crunch. Well, william, it certainly can be problematic getting access to china think probably both seen that. So does this really hold investors back ? And is this the theme we're seeing in other places in emerging markets ? With this more china focused, china is one of the big local markets where it's still difficult. Not impossible for non residents to access it's becoming easier on has bean a lot of discussion as to whether j p morgan would admit china into their local government bond index and it's something which they are keeping under review. So we're probably know in a year's time the question is, though, is even if access wass as free as it is, shall we say, into the mexican all the south african markets ? Would you really want to invest there at a yield of ah three and three quarters, four percent from the point of by the standards of other local markets ? That's a very low yield compared to over eight percent in south africa, ten percent in brazil also, the the record of the chinese remember over the past ten years is not one of a currency which is being appreciating. I even if the chinese market were opened up tomorrow, i don't think it's something that we would find attractive. Okay, so then to summarize this section, then that's i mean it's, obviously we've barely scratched the surface when it comes to geopolitical risks and that's the thing, but so thank you for what you pricey and is it everything we discuss ? Is this altering your investment approach it all or is it just noise ? I think it hasn't really changed our views overall. Obviously what happened during the summer did increase the volatility and put some additional spread and yield back into the market, but we think that the markets now pricing in more of the wrist underlying the economy's previously, earlier in the year, certainly last year we were actually expensive, we weren't really pricing fully pricing the risk with in the end, but we think we have reestablished some value. We're not super cheap was certainly no expensive here and see me and what will you be keeping your eye on in there months or a year ahead ? So our clients are generally strategic investors looking for long term capital allocation on dh there's a general trend towards emerging market debts because it's underrepresented in portfolios currently so we'll continue that push and william few has the all the noise we've been hearing is this influencing your investment decisions or what it wear looking to reduce our cash levels to go fully invested ? We're looking teo certain local currency markets where there's bean huge. Depreciation against the dollar, namely argentina. Well, now let's, move to the second part of this master class. We've looked at some of the risks, not we probably just scratched the surface, but some of the wrist. So now let's, look at the opportunities so, steve, i won't start with you and the disparity between perceived in actual risk in the tendency to paint all emerging markets with the same brush we've we sort of touched on that slightly how much of a problem is that for us is an active manager actually creates opportunities off see if that the market is selling often we're having dislocations which maybe non actual dedicate investors are not aware of. It creates opportunities for us. I think we're still relatively cautious so we're really looking in terms of it. We see the opportunities in investment grade corporate, some typically the lowest volatility asset class way. See there's, there's good opportunities there selected local markets as well, but broadness within local markets. We think you need to be very selective on individual countries. So be very selective local markets. More constructive on the dollar debt, but with an emphasis on staying with the investment grade. What's your thoughts on this ? Sydney and how much of a problem do you think it is painting all ems with the same also has definitely changed because the genuine diversification bills off the fact that these these economies operating in different cycles and have their own issues. So that's actually a good thing, but the boston common factors that are affecting them there is a common headwinds that could build over coming months. Andi should be cautious with that in mind, but in general were positive about emerging markets or at least we're not. We're not negative with our views neutral, but we're not dog getting clients away from the markets on the basis of these headwinds, because those exist in other markets as well. In fact, on the active side way propose maintaining their investments and not not be hedged on the debt side biting towards hard currency with small each allocations very selective. Teo, the local currency. And for you, willie, where you seeing the opportunities ? Well, we look att a ll countries which have got a middle income or low income per capita. And so we got about ninety countries in our universe on they go from the or well known. Countries like mexico on south africa to some of the least well known countries such as chad or popular new guinea. So we look at anything which meets the definition of being a lower middle income capital country on new opportunities appear all the time, not necessarily in in the bond format, sometimes it's possible to take exposure to a country through alone, for example. Okay, then. So i want to just quickly look at the volatility of emerging markets. And speaking to you earlier, you said they're not as volatile as people think. Just explain that to me. I think what happened with in emerging markets as the asset classes grown general over the last ten years or so, volatilities within emerging markets has has diminished parlay some will say that's because of the liquidity that's coming to them the system but for us is because a lot of these countries have actually matured have actually developed. You've had ten to fifteen years of growth in many of these markets. They have created their own domestic investigation, which i think is crucial in terms of in the local bond market if you have a large, deep pool of domestic. Liquidity that helps provide funding for the local banks and for the local corporations, which helps diminish the volatility if external international investors decide to take their capital out. So i think the advent of mohr regional and country based investor base is being pension funds or insurance companies have helped dampen the volatility. But if you look across the asset class, you got local markets which is by far and away the most volatile asset class because of the foreign exchange elements all the way through to investment, greed, investing great corporates which actually have low volatility than us invest a great many people are aware of that. So one of the key things in terms of managing risk for an asset as a manager like ourselves post the global financial crisis, we have many pockets off assets so we can actually reduce the volatilities in rather the boom bust that you had back in the nineteen nineties and two thousand. I saw you nothing, simeon. Is this and there you agree with this analysis ? I think steve made a point about the spreads. So yes, i article that's looking at where spreads are currently in emerging markets. They within the range, they were closest to the median than the other markets you might look at where spreads very compressed and so for a bit more of an opportunity there after a bit of you pick up really the main, the main reason for investing merging markets isn't isin for that you enhancement it's for diversification. Really, you ideally want a fixing comport very diversified across as many individual entities as possible, and this is a great market where you can get exposure to a wide number of different names that you otherwise just wouldn't have exposure to the currency is an issue in terms of your original question about volatility. Currency feeds through very strongly to the overall return that you were on def. You remove that and just look at local performance. The acting market's pretty comparable with the volatility of developed markets, the challenges the those two come as a pair because of the the return that you rode through hedging. How do you see emerging markets having evolved as an investment opportunity ? You know, over the last ten years and where are we now ? Would you say compared tto the developed world ? Well, so if we look at the debt market, the debt market is something like ten times what it was twenty years ago, so there has been a substantial amount of growth that's predominantly in the local in the local market. But there's been substantial growth in the hard currency as well, but just not the same extent. S oh it's a bigger market it's attracting money from a wider investor base and that's good, because if you have investigated concentrated in one type of investor, you find factors that affect that investor base, then feed through the market prices three underlying assets, even if the underlying is not actually threatened. So having a diverse investor base is a key part of having a successful the investment market on dh that's something that we've seen develop and will continue to develop. Okay, so let's look more at the opportunities then so william regionally speaking, i mean, where you looking at the moment ? I'm not sure whether it's wise to look att regions is being home a genius there's some countries in africa which are big or producers and i've got nothing in common with other countries in africa like kenya, uganda or tanzania. Which don't produce any oil at all. They've actually got maurin common with latin american countries like ecuador, venezuela, so we tend to avoid the kind of regional approach, saying let's, find africa and get out of the far east asia. We take each country on its merits and you never know what is going to turn up. As i said, popular new guinea has recently issued a ten year bond in us dollars it's not something we actually bought a new suit because the yield was not sufficiently high for us that she became the sixty, or will become to sixty eighth member off the index for dollar denominated emerging market debt. We've now got sixty eight countries in their index with over one hundred thirty issue is that's a big change from ten years ago when you have only had forty forty countries in their index with about sixty or seventy issues ? So you can now construct a very world diversified portfolio out of dollar denominated sovereign emerging market debt. There's also a corporate emerging market debt, which steve has already talked about so what's it really exciting thing is similar to what williams is tough to actually. Just nail it down to one one particular country. There is a huge opportunity out think there's numerous sectors like if you've got a country struggling with its current scene it's selling off, then they're exporters of issued us dollars you're actually benefiting from this, i think there's it's always very difficult to actually find hold it down into one particular country, but totally agree with you. You can't just take a regional approach. You need tohave looking individual countries, individual sectors. But it is a huge universe. I know you specialize in emerging market that so how do you pick your assets then ? How'd you go through this whole universe and narrow it down ? Part of it is because we have our blended strategy. We have to decide whether to be overweight on the way to corpora hard currency, seven hard country on local market. So there's there's a top down asset allocation decision which really depends on our overall view on gross. It really starts at that level. We have underlying themes. Whether we think commodities are selling off for weakening. Some countries within the em benefit from that some of them actually a disadvantage by it so. It's really starting from our top down on scene level that's really ? How we select and then we look at individual countries and individual corporate that fit those themes. The case is finally in this section, i just want to touch on something you said about in part one and this is, well, saudi arabia and for other gulf states there now entering jpmorgan's emerging market government bond indices next year. Why is j p morgan done that ? Why's it ignored china and gone through saudi and these gold states, we're the only unit. What is that justified to choose those five ? Well, the i think the reason is that over the past five or six years, some of the gcc countries gulf cooperation council countries which previously hadn't borrowed in the bond markets a tall, at the sovereign level have actually now borrowed substantial amounts in particular saudi arabia, which had never sued a bond up until two years ago on dh it's, now quite large amounts outstanding, and they were sort of in a carom oh, man's land, because they didn't get into the emerging market index because their gdp per capita was too high and they didn't. Get into the mainstream government bonds into season the states because these were europeans issued outside the states on dh i think that some of the larger managers who were holding these bonds essentially wanted to put them into a new index so they could claim that they weren't didn't have too much of their portfolio off index. So but in a way does this come down to a definition of emerging markets. What's what's your thoughts in what i think the definition is very important because it determines which country's fits within these indices on that determines an awful lot of in terms of the capital flow are those come countries received so it's very, very significant move for a country to land into the emerging market index from the frontier index in terms of the international money that will flow their way on dh there's number different factors that used by the index providers to determine these and i think it's a very fair system, but you always have a line in sand where countries very close on either side, andi becomes quite a small difference. S o i think it's good news for a country to london. The index, i think it's, helpful for investors to be able to access a wider ranger countries within the emerging markets category. Because frontier markets do capture an orphan. All the countries that have some severe challenges and therefore emerging market category, i guess, has a has a safer label attached to it. Okay, so let's, move on to the third part of this master class now, and i'm going to start with you. Let's, um, research from scope. So they said german institution investors are turning to emerging markets and backing third party asset managers to increase their exposure. So why do you think then that there's this up ? Take steve, i think some of us for the points we've made before that this this has classes come extremly broad, very complex had multiple facets to for maybe a german institution investor who particularly maybe have done it in house before, they probably need some additional expertise, maybe their investments a very narrow, within one particular sector of emerging markets, i think actually broadening out on bringing in thirty, that party managers open up other markets they can potentially invest in. Obviously dedicated managers like ourselves have a dedicated team that focused on these markets where maybe the german institutional investors won't have that capability or that broad range of skills that are required for investing in emerging markets. On where have you seen william institution investors allocating teo emerging markets ? And do you think this is going to be changing ? Give ? It time wave actually seen institutional investors taking money away from emerging markets, i regret to say, but this, i think, is mohr do too the particular institutions concerned. We have some corporate investors whose pension funds are now becoming roughly fully funded, and a cz corporate pension funds get into that s'more safer position there's a tendency towards him amore kind of liability proven investment approach on if you're trying to max assets and pension liabilities in northern europe, really holding south african rand bonds or brazilian rail bonds doesn't really come into the matching process. Have you been saying similar things to this off ? Yes. So imagine mark inequities have been accessed by pension schemes for for a long time. I think people are comfortable with either through an unconstrained global manager or through a specific mandates who emerging markets on. So i think that that's that's something of a staple in terms of the debt side that's, that's something relatively new, the market's been growing, but also the means of access has been growing. It does, it does require specialist management's because of the nature of some of the risks that you're exposing yourself to, but bonds in general is a very technical asset class, and on gwen, you're introducing bonds of different currencies in different interest rate environments. You need to take that all into account when you were deciding how much to weight class. So so say yes, specialist emerging market debts. Um, the manager is the way you might access. So what role then, steve, do you think emerging market that fits into an institutional portfolios at all about diversification ? And should institution investors be taking that kind of risk ? I think there are a number reason the institution investor, obviously, that one is that diversification benefits some of simply see it as a yield enhancement in their broader fixed income portfolio, but i think as the markets mature and the understanding about emerging markets increases, i think, as we've said in in earlier parts of some of this, components of the class are actually much less volatile, and you think some of the clients have actually added to emerging markets and actually reduced volatility within their fixed income. I think that there are multiple reasons that that institution vessels are looking image market, andi think that the broad spectrum of assets we have provides a solution too many of their their needs. I think that's why these institutional vessels are continued to look in obviously the volatilities something they need to be cognizant, often unaware off. But i think often it does fit within their their broader global would you agree, william ? I mean, why do you think institution of esther's should look att am day ? I think the main reason is the much high level of income are found domiciled in ireland has bean paying out as a dividend yield seven percent consistently over the last fifteen years. That's great news for an endowment which needs to generate cash every year to give to the endowment for whom it's working on dh. I think you are going to achieve that form of income from anything but the most risky equities, and certainly not from uk government bonds, let alone european government bonds, many of which have negative yields. How would you say md compares to other fixed income assets ? Simeon well, so we've already talked about the different types of emerging market debt you've got the suffering or corporate you've got local or hard currency, each of those categories has a different role to play for client so if you're looking for a very low strategy and the local currency is probably not for you are at least a very small allocation. But if you're looking for that middle level of risk, then when it does come to the fore, onda offers an opportunity futon some extra return. So, yeah, it's a very technical asset class, understanding the components and each each of them and how they build towards your overall portfolio is very important on that say on that's the technical job so it's not the sort of thing that you'd want to allocate. You're in a very simplistic way you want to do in a very considered way that's thinking about each asset on dh. How it's heading to your port and steve what ? What you think are the real advantages them for holding it is a source of income. Is it ? Is it mainly about that fear ? I think it is a combination also depends on the institution they risk. Tolerance is really depending on the individual institution investors. So it's very difficult to come up with a broad, broad summer of why, but i think again going back to the point where it's multi multi faster there's so many different components to waken fried a broad range of risk solutions for our clients. Well, how about when it comes to things like eating after their good approach foreign hsuehshan vest when it comes to ? And would you say, i think one of the challenges for the isa liquidity in the system typically that that market is still relatively in its nascent phase, one of the what we've seen in some of the manager you have created, those chefs have had a relatively finite number of securities in the chefs, so they're trying to mirror the asset class and i think that's very difficult to mirror the asset class in just a relatively small number of assets. Typically, these are inefficient way of putting cash to work initially until you actually find the final assets you want, they do serve a purpose, but i think the liquidity in the market, which is relatively scarce versus some of the equity markets, is very difficult for those step to grow into more than a relatively small component of the overall investor. Nice place on what your thoughts in that semi enemy and obviously we're hearing a lot about costs at the moment, specially for pension funds, that sort of things so jeff's, passive approach. Tio what ? Your thoughts ? Well, i suppose it's important to manage cost and today its account as part of your appeal strategy, anus and very focused on the clients. Yes, i think in relation to emerging market debt could be a bit of a blunt tool in terms of some of them more specialised elements, but something like corporate and sovereign hard currency could be a way of getting a board exposed to that in a cost effective way so certainly wouldn't rule them out, but i think i think they're role would be relatively nation. Yeah, and, william, your thoughts way find that the kind of big, um, us pension funds and the big sovereign wealth funds, some of whom we manage money for. I prefer an active approach in emerging market debt. They feel that anak tive approach with two to three managers can produce superior risk adjusted returns. Teo passive approach. Okay, so then, every wall for institutional best. So how do you think the best way, stephen, could i ask you is for institution investors to really reduce the risks in the am portfolio i think that the challenging our mark is we don't have a efficient derivative tools actually dampen down that volatility. Our views is very much that you need active managers. Typically we will work with a client with specific tailor made guidelines for that particular client's interest in terms of managing it in terms of the overall risk. We believe it is very much on active managers asset class, that the passage route it does not give you that, that risk adjusted solution. Okay, we are almost out of time to see me and just quick question for you said trans moving forward, what do you think ? You know what you think will be influencing investment decisions ? That's something we haven't talked about today is yes, g andi think the emerging market area is really interesting every developments in this because the developed markets have come a long way, they've still got a long way to go as well. But emerging markets, i think, generally considered to be behind on this so interesting to see the extent to which he sg feeds through to underlying decisionmaking within the emerging. Markets last year's a massive subject for a lot of institutional portfolios, but few william, it does this you take into account easiest year for am i mean, they are due for quite far behind in terms of developed market. So you know, your approach there, i would agree with simeon that it is a little bit difficult to incorporate sg considerations into emerging markets. The quality of the data and the merger markets is not as good as it is in developed markets on dh making assessments is a little bit tricky certainly if you're looking at a country like venezuela, for example, so finally, what will be influencing your investment decisions and stephen the next phobias ? What trends you focusing on ? Think trans officer for us, it's the versus d m growth differential if we see a widening of that way, believe that's going to be constructive emerging markets ? I mean, in terms of longer term, we're looking at off see new markets, they're coming well will open up, but in terms of overall, we think there's a significant opportunity at that to narrow it down again. It's a very broad asset classes, so just say what we're going to focus on the next three to five years that this market is very different from what it was three to five years ago. I think as an e m manager, you need to be flexible. You need tio have your investment process that involves with the market as well. So i think that's for us, looking for the constant evolution of this asset within fear. What will ? What will be influencing ? I think brazil were very interesting market in the next five years. It looks as if a market friendly candidate will be elected president at the end of this month. On will be able to repair some of the damage that's been done to the brazilian economy in the last ten years. Come on, brazil is the second biggest emerging market in terms of population. That could have a major impact upon lesson america as a whole. Okay, super well, we are almost out of time. What would you like ? The view is really to take away from this mass class. Your final thoughts will say, william, why didn't i think it's time to look seriously at emerging market debt for the first time in five years. We do offer value. I mean, what would you say ? I would say that emerging market that should feature in a multi sector credit portfolio. It has a lot to offer, but it has to be done in a very careful way. I think today continues to evolve and broaden and deepen, and we think it should be a core component off people's global portfolios, as well as their fixed income allocation. Super well, thanks so much for all of you being on today, and few, thanks for watching. See you next time.