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White Papers

Emerging-market debt: Navigating the allocation dilemma

Positive fundamental changes in emerging markets over the past 10-15 years, along with robust economic growth and the proliferation of emerging-market debt (EMD) indices, have helped transform EMD into a mainstream asset class. Growing interest in EMD has led to increased resources dedicated to these assets and expanded access for investors, which has added to the complexity of making allocation decisions relating to this asset class.

Investors' endeavors to blend local currency sovereign debt, corporate debt and off-benchmark country exposures with traditional external (hard currency) sovereign debt investments have, had mixed success. The predominant allocation approach among investors looking for broader access to the EMD opportunity set – a purely top-down blend of the three main EMD indices – seems to resonate with pension fund boards, but is not without inherent flaws.

Eaton Vance believes investors should adopt an active, unconstrained approach to EMD that focuses on country-specific and detailed risk factor-focused analysis across the entire tradable universe.

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