A duo of emerging-market bond veterans at Jeffrey Gundlach’s DoubleLine Capital is taking no chances as Donald Trump rolls out his trade agenda.
Su Fei Koo and Mark Christensen, who help manage the $420 million DoubleLine Emerging Markets Fixed Income Bond Fund, have been moving away from riskier credits, favoring shorter-duration notes and buying corporate bonds from defensive, predictable-income sectors such as utilities and banks. Region-wise, Latin America is where they “get paid for the risk,” said Koo.
“It’s just a lot of uncertainty,” she said in an interview. “We’re moving a little more defensive, being in sectors that are hopefully out of Trump’s sphere.”
The back-and-forth on levies has been roiling markets over the past few months, pushing the S&P 500 Index into a correction and more recently sending a measure of expected fluctuations in US yields higher. Going into a tariff announcement this week, traders continue to recalibrate their bets as they assess the possible implications for global markets.
An index of Latin American credits shows that the region’s corporate bonds have delivered a 2.8% return this year, higher than the emerging-market average, according to data compiled by Bloomberg.
The fund is investing mostly in corporates, although it still likes sovereign debt from countries that are on track for being upgraded to investment grade, such as Guatemala, Paraguay and Dominican Republic. Mexico, Peru, Colombia and Brazil were the fund’s four biggest exposures from a country level as of late December, filings show. Hybrid bonds issued by the region’s lenders — Additional Tier 1 perpetual bonds and Tier 2 notes — also offer value, Koo added.
And even as overall exposure to junk bonds shrinks, they still see a few opportunities in riskier names.
“There have been a few Brazilian high-yield names that are not being loved by the Street in the transportation sector that we like,” Koo said.
The fund, DoubleLine’s flagship emerging-market debt vehicle, is beating 86% of peers in the past month, data from Morningstar Inc. show. Over the past five years, the fund tops 76% of them.
Despite the conservative approach, the fund isn’t hoarding a lot of cash. While long-lasting tariff measures would be a worst-case scenario and prompt people to sit on cash, there’s a “decent” chance that the Trump administration’s trade narrative proves a negotiation tactic, Christensen said.
“I don’t think we want to race to the exits and just put on a bunch of cash because we do have good credits,” Christensen said. “I don’t think we’re to that extreme yet in our thoughts, but we are wary of it.”
Koo and Christensen, who joined the firm in 2009, were among TCW Group veterans that Gundlach chose to build his EM team as he launched DoubleLine. While the pair has skirted direct impacts of Trump’s 25% tariffs on auto imports by having no exposure to the sector, they’re wary of the upcoming announcements.
“There’s no clarity on the US policies,” Koo said. “Trump keeps me up at night.”
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