Emerging Market Debt has become relatively attractive in the last few months due to worries about the global economy holding up as well as the impact of rising US rates on EM creditworthiness. The reality is that EM Debt yields pay investors 1.55/x per turn of leverage vs. just 0.4/x per turn of leverage for US debt, in the corporate debt sector. This divergence is the highest in a decade.
This is why we view a fund like DoubleLine Income Solutions Fund (DSL) as attractive. The fund is overweight EM debt with a 40% balanced by US HY corporates, CMBS, CLOs and other fixed-income securities. The fund’s duration is on the shorter side at 3.6.
The fund has put up very strong returns in the past year with a total NAV return of 15.2% – about 2.5% above the sector average and stronger than the majority of the PIMCO taxable funds despite its EM overweight.
At the same time, valuation relative to the sector has lagged with DSL trading close to 10% wider of the sector average.
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