Swiss & Global Asset Management, the manager of Julius Baer’s funds, has launched a new fund to invest in emerging market inflation-linked government bonds.

Domiciled in Luxembourg as a SICAV, the Julius Baer Emerging Markets Inflation Linked Bond Fund is co-managed by Bernhard Urech and Alessandro Ghidini. It is benchmarked against the Barclays Emerging Markets Government Inflation-Linked Bond Index (ex-Argentina, ex-Colombia, constrained, un-hedged US dollar).

According to the firm, the emerging market inflation-linked government bond market is currently worth some $350 billion, equivalent to 20 per cent of outstanding inflation-linked bonds in the developed world, and is made up of ten countries and their currencies: Argentina, Brazil, Chile, Colombia, Israel, Mexico, Korea, Poland, South Africa and Turkey.

The pace of emerging markets’ recovery since the financial crisis can have escaped no-one’s attention, with many emerging market economies performing markedly better than their developed market counterparts. As such, emerging markets bonds – both government and corporate – have found favour among investors looking for growth in the prevalent low interest environment in developed markets. However, as Urech notes, the very structural and cyclical forces which are driving emerging markets’ growth is also fuelling inflation which may erode returns from fixed income investments.

“Rising prices are a growing threat. Investors therefore face the challenge of how to best protect themselves against this trend while continuing to benefit from the compelling real rates and currency appreciation potential these markets offer. One interesting way is to buy protection via local inflation-linked government bonds,” he said.