(Bloomberg) -- The flagship emerging-market debt fund from Jeffrey Gundlach’s DoubleLine Capital is loading up on bonds from Guatemala and Paraguay as it ditches riskier credits.
Su Fei Koo and Mark Christensen, who help manage the $459 million DoubleLine Emerging Markets Fixed Income Bond Fund, said they’re buying debt from the two countries that they think are candidates to be upgraded from junk territory in the coming months.
They’re more cautious on debt from lower-rated countries in anticipation of volatility surrounding the upcoming US elections, which might hamper appetite for riskier assets.
“We had just started taking off some of the lower quality and moving it into higher quality,” said Koo, whose fund has returned 7.4% so far this year, beating 89% of peers, according to data compiled by Bloomberg.
Koo likes Guatemala bonds because of the country’s liquid market and strong debt metrics. It is rated one level below investment grade at Moody’s Ratings. Fitch Ratings and S&P Global Ratings score the nation two notches into junk, with the latter assigning it a positive outlook.
Paraguay, on the other hand, was raised to investment grade last month by Moody’s, which cited the country’s efforts to stoke growth while making its economy resilient to more shocks. The other two major agencies rate it at the highest level below investment grade with a stable outlook.
“The expectation is that we potentially could have one more rating agency upgrade within the next 12 months or so,” Koo said.
The managers also consider Panama’s debt attractive after last year’s selloff, which was sparked by the closure of a key mine.
The DoubleLine fund has skirted one of the biggest meltdowns for developing-world investors in recent years. The fund exited some Russian debt after the annexation of Crimea and had been avoiding debt from nations in the region at the onset of the war.
It also finished dumping China debt in early 2022 on signs government meddling, especially in the tech industry, Christensen said.
“We didn’t need to be there,” he said. “We could find value to replace that elsewhere without having to wonder what news headline you’re going to get the next morning.”
©2024 Bloomberg L.P.
