Principal Asset Management® recently launched the Finisterre Emerging Markets Debt (EMD) High Income Fund, seeded with $100 million.
The Fund provides investors with access to a differentiated emerging markets debt strategy focused on maximising income generation from a diversified portfolio of EM sovereign, corporate and local bonds, and is underpinned by a time-tested research process aiming at limiting extreme macro and credit risks.
A differentiated approach to emerging markets debt
Unlike traditional benchmark-driven EMD strategies, the Fund is constructed around a proprietary framework profiling each EMD asset’s key performance, liquidity and volatility dimensions. The Fund has an objective of maximising income while maintaining a moderate volatility profile, historically within the 3–5% annualised range. Portfolio duration is typically maintained in the 3 to 4-year range, reflecting a structural bias toward shorter duration than broad EMD indices.
The Fund is managed by Damien Buchet, chief investment officer of Principal Finisterre, and Christopher Watson, Senior Portfolio Manager. Principal Finisterre is the specialist investment expertise within Principal Asset Management solely dedicated to creating EMD investment solutions.
A proven strategy
Designed to deliver a diversified income stream, the Fund targets attractive carry opportunities across hard currency sovereign and corporates, as well as a careful selection of local currency opportunities exhibiting the most attractive “carry to volatility” features. The strategy is long biased as it seeks to capture income across the EMD universe through selective security and country positioning informed by macroeconomic and credit research.
The strategy is built around the conviction that income is the primary driver of long-term returns in EMD, while capital gains are less predictable. Rather than seeking to time markets or actively manage drawdowns, the Fund emphasises income diversification and a moderate duration exposure, which have historically supported more resilient recovery patterns following periods of market stress.
“In today’s environment, investors are increasingly focused on the durability and reliability of income as volatility persists across rates, currencies and risk assets. Emerging market debt remains one of the few areas offering genuinely attractive yields, but dispersion across countries and issuers is widening, making selectivity and research critical.”
Damien Buchet, CIO of Principal Finisterre
The strategy is designed to anchor returns through income using a disciplined, unconstrained investment process. It has provided investors with access to a high income EMD strategy with a solid track record since 2019 – delivering annualized net returns of over 6% since inception having been applied into dedicated institutional portfolios through the most testing period of 2020-2023.
Deep research, strong convictions
The Fund also benefits from Principal Finisterre’s extensive research platform, with coverage across more than 70 sovereign issuers and deep corporate research spanning core and opportunistic sectors. The team selects securities based on their convictions, without reference to a specific index. Reflecting the team’s higher yield bias, the portfolio average credit quality typically ranges from B+ to BB+, targeting current yields of 6–9% over a market cycle.
The portfolio is constructed with high conviction, usually comprising 100–150 issuers, combining diversification with a thematic approach to income generation, inspired by sectoral or macro dynamics. The team retains an active mindset and never hesitates to reduce risks as soon as a significant macro or solvency risk materializes on any issuer.
We recently covered Emerging Markets in our latest issue of Wealth DFM Magazine, which you can find here!
