INVL Asset Management, one of the leading asset management companies in Lithuania, is establishing a new mutual fund, which will invest into the bonds of the emerging markets. The INVL Global Emerging Markets Bond Subfund, which will start on 1 July, will be the first among investment bond funds, registered in Lithuania, to offer investment in bonds on a global scale. The new fund will focus on investing in government and corporate bonds not only in Europe, but also in Asia, Africa and North and South America.
In addition, in order to encourage the country's residents to invest more actively, there will be no minimum investment amount in the fund, besides to this the standard distribution and management fees will not be applied for this fund until 2018. The Bank of Lithuania authorized the creation of the new fund on 27 June this year. As of 1 July, INVL Asset Management will manage a total of five mutual funds.
"In creating the new fund we first of all examined the market's needs – in the current low interest rate environment there's a lack of investment products that can offer a higher return. Considering the situation of emerging market bonds around the world, we think that, assuming a prudent level of risk, we can build a bond portfolio with an average annual yield to maturity of more than 5 per cent. We believe this fund may also interest people who don't have extensive investing experience," said Tomas Krakauskas, the head of the Investment Management Department at INVL Asset Management. He said the fund's main objective will be to seek the highest possible risk-return ratio and ensure that, as markets are going down, changes in the fund's unit value are smaller than those of the benchmark index.
The managers of the INVL Global Emerging Markets Bond Subfund will invest, on the basis of fundamental analysis, in emerging markets throughout the world, not limiting themselves to specific sectors or regions. Investments will focus on bonds of companies and governments in these markets to be selected for their low debt ratios. The largest emerging market issuers of bonds are Mexico, Indonesia, Turkey, China, Brazil and the Philippines.
"The historical return on emerging market bonds is high – their average annual return over the past five years was 5.7 per cent. Of course, past results don't guarantee the same performance in the future and the volatility of these securities in certain periods can be significant. But to look at the period mentioned, after the large 12 per cent drop in 2013, within a year their value returned to where it had been and rose to new highs," said Tomas Krakauskas. He said investors who intend to invest in emerging market bonds should not forget that fluctuations in this asset class are sometimes significant and one's investment horizon should be at least two years.
The fund will seek to ensure a stable return on investments, investing at least 80 per cent of its assets in the most promising emerging market government, municipal and corporate debt securities, and combining riskier investments (corporate bonds) with safer ones (government and municipal bonds). The development of the management strategy for the INVL Global Emerging Markets Bond Subfund will also take into account the company's experience managing its largest fund, the internationally-recognized INVL Emerging Europe Bond Subfund.
INVL Asset Management is the only company in Lithuania that manages bond mutual funds. Mutual funds managed by the company had assets of EUR 41,2 million as of 27 June. According to the Bank of Lithuania data for the end of 2015, INVL Asset Management was Lithuania's leader in terms of its number of participants in investment funds registered in the country, with a market share of 47 per cent. In other words, nearly every second participant in this market had chosen mutual funds managed by the company. The company also manages eight 2nd and 3rd pillar pension funds and provides portfolio management services.
INVL Asset Management is part of Invalda INVL, one of the Baltic region's leading asset management groups. Companies in the group manage pension and mutual funds, alternative investments, individual portfolios, private equity and other financial instruments. They have 340 million euros under management, entrusted to them by more than 150,000 clients in Lithuania and Latvia as well as international investors.