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DoubleLine bets on Latin American bonds after avoiding Russia

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(Bloomberg) — A leading emerging-markets bond fund from DoubleLine Capital LP, the firm headed by Jeffrey Gundlach, is looking for opportunities in Latin America after outperforming its peers with an unusual strategy that insulated it from the war of Russia in Ukraine.

The $759 million DoubleLine Emerging Markets Fixed Income Fund (DBLEX) has outperformed 97% of its peers in the past month by opting for better-quality, undervalued loans in countries like Colombia and Brazil, while avoiding pockets of riskier debt, their managers said in an interview. The fund got out of Russian debt after the annexation of Crimea and has avoided other bonds from nations in the region, a strategy that contrasts with some of its biggest drivers, including Pacific Investment Management Co., BlackRock Inc. and Ashmore Group Plc. .

“We avoid exposure to Eastern Europe, but at the same time we are looking at Latin America, in general, which tends to stand out from the high commodity price cycle,” he said. Mark Christensen, who manages the fund with Luz Padilla and her Fei Koo.

Without fruit, the fund has lost and 2.8% during the last month. Still, it’s a slight decline compared to the 7.7% drop in JPMorgan’s Emerging Market Bond Index.

That leaves Christensen and his co-managers trying to spot dislocations in emerging markets, where risk-averse selling is overblown. Colombia and Brazil fall into this category, despite elections to be held in both countries.

Even if anti-oil presidential candidate Gustavo Petro comes to power in Colombia, Koo said that “institutional safeguards exist; he may not get all of his radical policies through Congress.”

They also plan to continue avoiding Eastern Europe, at least for now. Christensen said they sold the fund’s holdings in bonds of Russian companies after the annexation of Crimea because of the risk of sanctions and unattractive valuations. Since the start of the coronavirus pandemic two years ago, they have also focused on investment-grade holdings, leaving no room for lower-functioning countries such as Ukraine and Belarus.

So left the fund in a strong position to weather the conflict in the region, although that was not DoubleLine’s motivation.

“The outbreak of an all-out war in Ukraine was not our base case,” Christensen said.

original note:

DoubleLine Bets on Latin American Bonds After Dodging Russia Risk

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