The rally in distressed emerging-market debt is expected to continue, with potential for further gains in countries like Argentina and Ukraine, according to a report by Bloomberg citing Sandglass Capital Advisors – a top-ranked hedge fund in the asset class.
So far this year, junk-rated emerging-market dollar bonds have returned over 13%, with top-performing sovereign bonds from distressed and defaulted credits like Argentina, Ecuador, Lebanon, and Ukraine, according to Bloomberg data.
Genna Lozovsky, CIO and co-founder of Sandglass Capital Advisors, believes there are still profitable opportunities in distressed debt, especially where economic reforms and growth align with favourable conditions, such as a potential Federal Reserve rate cut. Although economic reforms in developing countries seem less robust than before, Lozovsky sees potential in emerging-market assets, particularly if the US economy achieves a “soft landing.”
“While we’ve seen a strong increase in distressed credit prices, there is still a great deal of variation, and many unique opportunities remain lucrative,” noted Lozovsky, whose firm manages approximately $515m in assets.
A recent survey from Global Investment Report shows Sandglass Capital Advisors has gained over 24% in the first three quarters, making it one of the top 50 performing hedge funds tracked. This compares to a 10.6% rise in Bloomberg’s emerging-market debt hedge fund index and a 16% increase in a broader gauge of distressed debt funds. The survey ranks consistently high-performing managers with at least $300m in assets over the past five years.
Argentina is seen as the top prospect for additional gains, with its sovereign dollar bonds returning 10 times the average of emerging-market debt. Should President Javier Milei’s economic reforms prove effective, investors could see 30-40% returns from yield compression in longer-dated bonds, potentially narrowing Argentina’s risk premium to levels similar to El Salvador, according to Lozovsky.
“Argentina has the largest potential given its $60bn bond stack,” added Lozovsky, whose seven-member team, based in London, focuses on emerging markets outside China.
