Get emerging market debt exposure with Aberdeen

Aberdeen's Emerging Market Bond Fund (GB00B5BV9P41) is worth considering if you're looking to diversify the bond exposure in your portfolio and have a high appetite for risk. It's a first-quartile performer and over three years it's returned 16.71 per cent. This compares well with the Investment Management Association's Global Emerging Markets Bond Fund sector's average return of 3.82 per cent over three years. However, the fund lost 4.19 per cent over a one-year period against a sector average return of 12.42 per cent for the same time frame.

The fund has an approach to currency risk management that will suit investors looking to reduce volatility, as, unlike its competitors, it is only 15 per cent exposed to emerging markets currencies, and 85 per cent exposed to sterling. Ben Yearsley, head of funds research at Charles Stanley, is a fan of this approach and says it makes the fund more attractive to retail investors than rivals that have a higher level of emerging markets currency risk.

"Until recently, I wouldn't touch emerging markets debt with a barge pole, but for the first time in a long time, I think its actually looking like a pretty attractive diversifier. The yield on this fund is particularly impressive and Aberdeen is a quality fund house with real experience in this region," he said.

The fund is well diversified among emerging markets and has no more than 16 per cent exposure to any one country. Aberdeen's investment team has an excellent track record in emerging markets and the manager, Brett Diment, who is also head of emerging market and sovereign debt at Aberdeen, has been investing in the region since the mid 1990s.

Mr Diment says there are fundamental improvements happening in emerging markets this year which makes now a good time to invest. These include falling current account deficits, rising interest rates, and a significant improvement in the Brazilian economy - the worst-performing region of 2013.

"I'm bullish on Brazil," he says. "It's now our biggest region and we've got 16 per cent of the portfolio invested in it. We're particularly heavy in local currency bonds which are paying yields that beat inflation by around 6 per cent."

He also likes Uruguay, in which 4 per cent of the portfolio is invested. It's a region that emerging markets equity investors very rarely get exposure to as there are few investable opportunities. However, this fund is invested in inflation-linked bonds, which are very attractive as inflation in Uruguay is around 10 per cent.

Henry Hoare, a researcher at BNY Mellon, believes there is a lot of value to be found in both emerging markets investment grade corporates, and even more so in high-yield corporates, because they are less sensitive to US Treasury movements, as spreads over US high yield are now at their widest for some time.

Remember, though, that emerging markets debt is a highly risky place to put your money, so you need to be aware of the risks. With the US winding down its quantitative easing programme, there is the threat of a spike in Treasury yields. And, politically, this is a big year as India, Indonesia and Brazil will all have national elections. Mr Diment says a global inflation hike would be the biggest threat to the fund, but he thinks this is unlikely.

With ongoing charges of 1.65 per cent and no performance fee, this fund offers an exceptionally wide selection of emerging markets debt exposures without extortionate costs. Buy.

ABERDEEN EMERGING MARKET BOND FUND