Blending Approaches To Earn Robust Emerging Market Returns

Tom Burroughes

5 December 2024

Recent emerging market hedge fund performance has showed more signs of life, and while global economic uncertainties create obstacles, a diversified approach can yield solid results, a London-based firm argues.

As reported by Hedge Fund Research in early summer this year, its HFRI Emerging Markets: Global Index gained 6.8 per cent from the start of January through May. One of the most potent ingredients in the mix was the HFRI EM: India Index, up 4.3 per cent year-to-date through May.

A mix of discretionary and systemic approaches is used by Broad Reach, a $1.8 billion AuM emerging markets specialist hedge fund, to achieve its results. Since the start of January, performance has been up 19 per cent, this publication understands.

Bradley Wickens, partner, chief investment officer and CEO of Broad Reach, a firm founded in 2016, says emerging markets have considerable potential, given their relative size and level of development.

In developed countries, combining equities and various fixed income markets, the total asset size is around $185 trillion; for emerging markets, it is about $50 trillion, accounting for about 20 to 25 per cent of the global total. Given the relative growth of EM markets, there is a lot of headroom to grow, he said.

“The key is that developed markets have many market participants and there is a lot of smart money in that space,” he told WealthBriefing in a call. “Emerging markets tend to be largely held by index funds, pensions and local insurance companies and not really by hedge funds.”

The Broad Reach team uses a macro framework, applying both fundamental and systematic investment processes to interest rates, credit, foreign exchange, equities, and commodities. The investment universe extends broadly across Asia, Africa, Central and Eastern Europe, Latin America, and the Middle East as well as developed markets.

In Wickens’ case, before starting Broad Reach, he spent 17 years as a founding principal of Spinnaker Capital Limited, and the partner responsible for credit strategies, systematic strategies, and macro special situations. His career has seen him work in London and Brazil; he was the fund manager of the Spinnaker Global Emerging Markets Fund. Before this, he was vice president in the emerging markets division of Credit Agricole Indosuez where he was responsible for the day-to-day trading of all Eastern European debt products as well as the longer-term positioning of special situation assets.

Colleagues at Broad Reach include Paulo Remião, partner, portfolio manager, Daniel Worth, portfolio manager and partner, and Edward Steel, partner, chief operating and risk officer.

A broad approach
The hedge fund firm takes a broad-based macro approach; it does not have a long-short equity strategy and does not trade in single-name equities or bonds, Wickens said. Discretionary and systematic approaches are brought together, and this is a differentiator for the firm, he said.

Among its approaches, Broad Reach uses AI-powered large language models for reading the news.

The hedge fund trades in up to 50 emerging market countries’ markets, he said.

At Deutsche Bank Research, the organisation notes that how markets react to the incoming Trump administration will be significant. "Our is that policy and market reaction in EM will be driven by fear of increased tariffs and higher core rates before (and if) they get to know otherwise. This should keep correlations high, till better visibility on timing/sequencing/quantum of policy shifts eventually helps differentiate in favour of emerging markets with better real rate buffers, lower dependence on global capital, stronger institutions, friendlier political cycles, and greater reliance on domestic demand vs global trade," the German bank said.