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Emerging Value Bond navigates volatile EM credit markets in its first year
Dhiraj Bajaj
CIO, Asia Fixed Income and Equities
Nivedita Sunil
Portfolio Manager
key takeaways.
Our strategy delivered on its objectives in its first year amid geopolitical shocks, rising interest rates and market volatility
Disciplined credit research and a flexible investment approach allowed the team to selectively increase risk where valuations overstated fundamental concerns
A high-conviction, benchmark-agnostic investment philosophy enables us to exploit both structural themes and tactical opportunities across the emerging market credit universe.
In its debut year, LOIM's Emerging Value Bond (EVB) strategy demonstrated the value of flexibility, conviction and active credit selection in corporate bond markets.
Periods of market stress during the period created attractive opportunities across emerging market (EM) credit. By remaining disciplined and focusing on issuer fundamentals, the strategy was well placed to benefit from the subsequent recovery and outperform its benchmark1.
Launched on 31 July 2025, EVB quickly faced a challenging market backdrop shaped by geopolitical tensions, volatility and rising interest rates.
A key test emerged in the first half of 2026, with the escalation of conflict in the Middle East. Concerns over energy supplies, global trade routes and the Strait of Hormuz sparked volatility across global fixed income markets, leading to wider credit spreads and deteriorating risk sentiment.
Rather than respond defensively, we leveraged the strategy’s investment approach to reassess opportunities as valuations adjusted.
FIG 1. Emerging Value Bond: strategy performance2 vs benchmark
Having started with an overweight to Asia and an underweight to Latin America (LatAm), the team progressively shifted exposure through late 2025 and early 2026. We moved to a LatAm overweight and a modest Asia underweight before the Middle East situation escalated.
This proved advantageous as commodity-related issuers, particularly in energy and mining, benefited from higher commodity prices while remaining relatively insulated from the conflict. We further capitalised on this ‘commodity windfall’ by selectively increasing exposure during periods of volatility as geopolitical risk premiums widened.
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Maintaining investment discipline during market stress
The year highlighted the benefits of staying disciplined during periods of market stress. Rather than relying on stop-loss measures or large cash allocations, we focused on intensive credit analysis, scenario testing and issuer-level research to determine whether widening spreads reflected genuine deteriorations in fundamentals. As confidence returned and spreads tightened, the portfolio was well positioned to participate in the recovery.
Beyond geopolitical developments, the strategy navigated a complex interest rate environment. The bear flattening of the US Treasury curve created headwinds for many fixed income markets, particularly longer-duration assets. However, EVB’s barbell structure – combining investment grade (IG) and high yield (HY) exposures – helped mitigate the impact while maintaining attractive income generation.
FIG 2. Emerging Value Bond summary risk indicator3
A key differentiator of the strategy is its high-conviction, benchmark-agnostic approach, which provides the flexibility to invest where risk-reward dynamics are most attractive. This is reflected in our structural overweight to Asia HY and underweight to Asia IG4. The positioning leverages the team’s deep expertise in Asia credit and sets us apart from many EM corporate bond strategies and broader EM benchmarks, which typically maintain larger allocations to LatAm.
The team's investment process combines a top-down assessment of macroeconomic trends, regional dynamics and sector opportunities with bottom-up credit research. This helps us uncover high-quality issuers in resilient economies, where stable carry and spread compression can drive returns, as well as mispriced credits in more challenging markets with attractive valuations and strong bondholder protections.
The strategy can also capitalise on both long-term structural themes and shorter-term tactical opportunities across the EM credit universe.
Examples from EVB’s debut year included4:
Themes such as electrification and growing demand for strategic commodities, like copper, supported positions in selected metals and mining issuers across Asia and LatAm. In these, valuations appeared disconnected from underlying business prospects and future supply-demand dynamics
Tactical overweight to LatAm and CEEMEA energy (Central and Eastern Europe, Middle East and Africa) through a diversified group of companies that we expected to benefit from higher commodity prices while remaining relatively insulated from supply risks faced by producers closer to the Strait of Hormuz
Select off-benchmark sovereign investments further enhanced diversification and provided additional sources of alpha.
At the issuer level, high-conviction positions such as New World Development and Vedanta5 illustrated the team's value-oriented philosophy. In both cases, the market appeared to be overly discounting near-term concerns despite improving underlying fundamentals. As corporate performance improved and market confidence returned, valuations recovered meaningfully.
How the Hormuz situation impacts the EM credit universe
The fallout from tensions around the Strait of Hormuz has been uneven across regions and sectors. Commodity producers, particularly within energy and selected mining segments, have generally benefitted from higher commodity prices. More broadly, uncertainty around energy exports and shipping routes has created winners and losers across sectors, highlighting the value of active security selection and regional allocation.
The strategy maintains exposure to several commodity-related beneficiaries, including LatAm energy issuers. At the same time, our largest country allocation, India, remains diversified across domestic-oriented sectors such as infrastructure, renewable energy and financials4.
As a long-only bond strategy, we remain focused on identifying companies with resilient business models, strong balance sheets and attractive return potential relative to risk – rather than making directional geopolitical bets.
We continue to see favourable long-term prospects in EMs. Improving policy credibility, stronger institutions and greater macroeconomic resilience in countries such as India, Pakistan and Turkey have strengthened corporate fundamentals and credit stability.
These trends reinforce our view that active managers can continue to find compelling investments despite periods of geopolitical uncertainty.
Combining top-down assessments with bottom-up credit research
Managing volatility begins with a disciplined investment process, in our view. For us, this involves an assessment of macroeconomic, geopolitical and market risks combined with rigorous credit research and issuer-level analysis. The approach helps us identify return drivers while continuously monitoring company fundamentals and risks.
Importantly, periods of volatility can often create opportunities for active managers. The EVB strategy can selectively add risk when valuations look compelling, supported by its unconstrained investment approach and a broad EM opportunity set.
A diversified portfolio spanning 113 issuers, 33 countries and 29 sectors4 helps support attractive income generation while limiting concentration risk. We believe EVB remains well placed to meet our goal: to deliver consistent outperformance in EM credit markets over the long term.
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Preference Centre
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[1] Past performance is not a guarantee of future results.
[2] LOIM. Strategy performance is based on a composite, from 1 August 2025 to 31 August 2026. Composite performance serves as indicative of the strategy. Past performance is not a guarantee of future results.
Emerging Value Bond strategy
The benchmark is the J.P. Morgan CEMBI Broad Diversified USD
Composite Return % (Gross)
Return, Gross Performance, Benchmark
Number of Portfolios
Internal Dispersion %
Composite Market Value
Total Firm's Assets
YTD
5.00
2.35
1
102
63,234
Aug to Dec 2025
7.17
3.57
1
55
59,805
Annualized and Cumulative Returns and Key Statistics
Annualized Returns (%)
Cumulative Returns (%)
Standard Deviation p.a. (%)
Sharpe Ratio
Tracking Error (%)
Information Ratio
Composite (Gross)
Benchmark
Difference
Composite (Gross)
Benchmark
Difference
Composite
Benchmark
Composite
Benchmark
1 Year
10.01
4.65
5.36
10.01
4.65
5.36
5.10
2.96
1.02
-0.06
2.23
2.40
3 Years
5 Years
7 Years
10 Years
SI
11.50
5.52
5.98
12.52
6.00
6.53
5.09
2.96
1.32
0.24
2.21
2.71
Risk statistics are calculated with monthly composite and benchmark returns. Risk-free rate: compounded return of the FTSE 3-month Eurodeposit Index from inception to 31/08/23, then JPM 3-Month Cash Index from 01/09/23 in the relevant reporting currency. Composite and Benchmark 3 year volatility is, at each end-of-period, the Composite/Benchmark annualised volatility calculated on the prior 36 month data series. 3-year volatility is presented only if there are 36 or more monthly returns available. Internal Dispersion of individual portfolio returns are only present for calendar years when there are 5 or more portfolios in the composite for the full year. Sharpe Ratio: ratio of the composite returns in excess of the risk-free rate of relative returns Tracking Error: annualized standard deviation of monthly difference between composite and benchmark returns Information Ratio: ratio of the composites excess returns over the Tracking Error Gross returns were used to calculate all risk measures presented in the GIPS Composite Report. Composite and Benchmark Definition
The Emerging Value Bond strategy is an actively managed, long-only strategy. The strategy follows a strong total return philosophy and generates returns from both interests accrued as well as capital appreciation from yield and credit spread compression focused on Emerging Market issuers predominantly in USD, and uses the JP Morgan CEMBI Broad Diversified TR Index for performance comparison and risk management purposes. In addition, it follows an unconstrained allocation approach and value-orientation in security selection, invests across the debt capital structure (senior, subordinate) in corporate, financial, and quasi-sovereign bonds. To provide more flexibility and opportunity, the fund may invest in Emerging Market sovereign issuers. The composite benchmark is JP Morgan CEMBI Broad Diversified TR. The composite currency is USD. Management Fees and Other Information
All returns are presented gross of fund total expense ratio. The maximum TER for this strategy is 2.37% based on the LO Funds - Emerging Value Bond, (USD) R A (investment above CHF 1m or equivalent), with a management fee of 0.60%. Withholding tax on income is treated on a cash basis, whereby recoverable withholding tax, dependant on where a client is domiciled, is added back performance when occurring. Further information on calculation methodologies and composite management procedures is available upon request. GIPS Firm definition
Lombard Odier Investment Managers (LOIM), the institutional asset management unit of Lombard Odier worldwide comprising all discretionary institutional mandates and all Lombard Odier public investment funds managed at the LOIM unit, but excluding Private Equity mandates and funds and the 1798 Hedge Fund family (as of 01.01.2013) as subject to a different management process. LOIM Exchange Traded Funds (ETF's) have been included since launch in April 2015. Firm Definition
The firm definition was recently changed by mentioning the non-inclusion of the LOIM Private Equity portfolios and the exclusion of the 1798 Hedge Fund family as of January 1, 2013. This change was done for accuracy purposes and involves no change in the composite list or no material change in the assets under management figures. Claim of GIPS compliance
Lombard Odier Investment Managers claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Lombard Odier Investment Manager has been independently verified for the periods 31.12.1996 until 31.12.2023. The verification report(s) are available upon request. A complete list and descriptions of composite is available on request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm wide basis. Verification does not provide assurance on the accuracy of any specific performance report. A complete list and descriptions of composites is available on request. Significant Cash Flow Policy
The firm applied a Significant Cash Flow Policy for this composite until December 31, 2010, whereby portfolios were temporarily excluded from the composite on any significant cash flow occurrence. This practice was abandoned on January 1, 2011 and no portfolios were excluded for significant cash flow reasons as of that date. Benchmark Information
The annual benchmark returns are calculated by multiplicative linking of the single-period benchmark returns. Any historic benchmark changes have been made to more closely reflect the composite strategy at a point in time. CFA Disclosure
GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.
[3] Emerging Value Bond is a long-only bond strategy and focuses on Emerging Market issuers and invests mainly its net assets in instruments denominated in USD, EUR, GBP, CHF, JPY and/or AUD. The strategy is actively managed and uses the JP Morgan CEMBI Broad Diversified Index for performance comparison and risk management purposes. The strategy adopts a strong total return philosophy and generates returns from both interests accrued as well as capital appreciation from yield and credit spread compression. In addition, it follows an unconstrained allocation approach and value-orientation in security selection. The strategy invests across the debt capital structure (senior, subordinate) in corporate, financial, and quasi-sovereign bonds. To provide more flexibility
and opportunity, the strategy may invest in Emerging Market sovereign issuers. The summary risk indicator is a guide to the level of risk of this product compared to other products. It shows how likely it is that the product will lose money because of movements in the markets or because we are not able to pay you. This product does not include any protection from future market performance so you could lose some or all of your investment.
If we are not able to pay you what is owed, you could lose your entire investment.
The following risks may be materially relevant but may not always be adequately captured by the synthetic risk indicator and may cause additional loss:
Credit risk: A significant level of investment in debt securities or risky securities implies that the risk of, or actual, default may have a material impact on performance. The likelihood of this depends on the credit-worthiness of the issuers.
Emerging market risk: Significant investment in emerging markets may expose to difficulties when buying and selling investments. Emerging markets are also more likely to experience political uncertainty and investments held in these countries may not have the same protection as those held in more developed countries.
Model Risk: Models may be misspecified, badly implemented or may become inoperative when significant changes take place in the financial markets or in the organization. Such a model could unduly influence portfolio management and expose to losses. There can be no assurance that a return will be achieved or that a substantial loss of capital will not be incurred. Before taking any investment decision, please read the latest version of the prospectus, the articles of incorporation, the Key Information Documents (KIDs) and the latest annual report and semi-annual report. Please pay attention to the Appendix B “Risk Factors Annex” of the prospectus. https://am.lombardodier.com/funds?q=LO%20Funds%20-Emerging%20Value%20Bond
[4] Holdings and/or allocations are subject to change
[5] Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities.
important information.
For professional investors use only
This document is a Corporate Communication for Professional Investors only and is not a marketing communication related to a fund, an investment product or investment services in your country. This document is not intended to provide investment, tax, accounting, professional or legal advice.
