Strategy and Portfolio Construction
EMDI invests at least 80% of its net assets in emerging markets securities under normal circumstances, spanning sovereign, quasi-sovereign, and corporate issuers. The fund’s definition of emerging markets is broad, excluding only 20 developed nations, and explicitly includes frontier markets. Portfolio holdings can range in maturity from overnight to 30 years or more, with no minimum credit rating requirement. The fund invests without limitation in high yield, or “junk,” bonds rated Ba1/BB+ or below — a meaningful distinction that signals a deliberate tilt toward higher-yielding, higher-risk segments of the EM debt universe.
The investment process is top-down, blending macro-level analysis of global markets and political developments with fundamental and technical considerations at the country and issuer level. This flexibility extends across asset classes, capital structures, maturities, and currencies. The fund also employs derivatives — including currency contracts, forward contracts, futures, options, and swaps — for return enhancement and risk management. Portfolio managers Damien Buchet, Andrew Fee, and Christopher Watson lead the strategy, which carries the Finisterre brand, a specialist EM fixed income manager within the Principal ecosystem.
Benchmarks and Comparisons
The fund uses the Bloomberg Global Aggregate Index as its primary broad-based benchmark and the JPM EMBI Equal Weighted Index as a secondary reference for peer comparison. Because EMDI tracks no underlying index, its outcomes depend entirely on active management decisions rather than passive replication — a key differentiator from index-based EM debt ETFs.
Risks Investors Should Understand
The fund’s high yield focus and frontier market exposure introduce meaningful credit and liquidity risk. Emerging market securities can be subject to political instability, currency volatility, and limited regulatory oversight. Derivatives use adds counterparty and leverage risk, while the fund’s broad maturity range creates sensitivity to interest rate changes. Shares may also trade at a premium or discount to NAV, particularly given that underlying securities often trade on foreign exchanges with different hours than NYSE Arca.
EMDI may suit investors seeking diversified income from EM fixed income who are comfortable with active management, high yield credit risk, and the inherent volatility of developing economies. The 0.59% fee is competitive for an actively managed EM debt strategy, though the fund’s early-stage AUM means liquidity in the secondary market warrants monitoring as the fund scales.
