• Structurally low real yields in developed markets will likely influence a rotation into EMD, an asset class where investors are typically underweight;
• Lower inflation than in the past means yields may offer more adequate compensation;
• Attractive EM fundamentals versus the developed markets; and
• A weaker dollar will influence investors to look to non-dollar assets that have potential to perform.

Aside from a source of meaningful return, EMD offers investors a broad diversification across a heterogeneous opportunity set. With EMD comprising one-quarter of the global bond universe, it is a strategic allocation that should not be ignored.

Given the current variables of the market, a blended active approach whereby managers have the flexibility to rotate across hard and local currency, government and corporate, to allocate to the best relative value is the approach to get the best value from such a diverse asset class.