Vanraes has been at the firm since 2008, taking the role of head of fixed income investment. Joining the firm in such a year – the period of the worst financial crisis arguably since the 1930s – has been instructive. 

Before joining El Sturdza, Vanraes was head of investment grade credit at Union Bancaire Privée, the Geneva-headquartered private bank, from 2000-2008. During this time, he managed global investment grade funds, investing in markets which are assessed using proprietary risk management tools.
 
“High-quality emerging markets are largely unknown, but offer significant opportunities to increase yield without taking on greater credit risk.  I would like to help people understand that it is not as dangerous as global emerging markets. We believe emerging market quality bonds offer the best risk-reward profile and as such we continue to monitor these regions closely to spot opportunities,” he told this news service in a recent interview.

“Chile is AA rated; it is more or less the same rating as France. Peru has been invigorated to single A, and is less dangerous than Italy and Spain. There are so many examples where countries are improving dramatically,” he continued.
 
In the search for yield, flows into emerging market bond funds have picked up recently, driven by a period of calm across global markets with the VIX “fear gauge” index dropping to its lowest level since December, 1993, in response to Macron’s recent election victory in France. (The VIX index captures volatility based on pricing of options linked to the US equities market; the higher the index, the more risky markets are seen, and vice versa.)
 
Net inflows into emerging markeet bond and equity funds this year have surged to nearly $60 billion - outperforming gains made in the whole of 2016. 
 
This growth reflects a positive macro-economic outlook. International Monetary Fund (IMF) data indicates emerging markets are poised for 4.8 per cent growth in 2017 and 2018 respectively. 

”We invest in these markets because they are not high-profile. Today probably the most exciting country is Mexico. The spread has widened dramatically since Mr Trump’s election as President of the US, so we have increased our allocation towards Mexico,” Vanraes said.
 

Risk management 
Vanraes and his team use a risk management system, which it started in April 2016 to rate the safety of investing in emerging countries. Out of 70 countries within the list assessed, the firm will only invest in 25 to 28 markets – based on a proprietary model that ranks countries between 40 and 100. Below 40 and the country is too risky, and scoring above 70 means it is a highly investable country. The team’s investment process is run by risk budgets and quantitative models.
 
Vanraes said that when a country scores under 40, it must be sold “without any sentiment” because the low score indicates low quality. However, the fund manager believes that risk management is only a tool and fund managers need talent to spot whether a country has potential.
 
Despite stating 80 per cent of the job is risk management, Vanraes believes human instinct is a better option. 

“Risk management is just a tool, it is not the driver of our management. I still believe in the ability of the fund manager and human behaviour to choose whether to sell or buy a bond. The tools help a lot, but we are still fund managers, we are still driving the car. We do not have automatic pilot” he said.

“Sometimes we sell bonds because we don’t feel they will perform before the risk management tool tells us that it is becoming dangerous” he added. 
 
However, Vanraes recognises the value of combining quantitative investment strategies with decision making. 
 
“The risk management tool is good in certain scenarios. In Turkey, during the failed coup in July, nobody could expect this political turmoil happening over the weekend. So on the Monday morning, the risk management tool can tell you exactly the kind of spread that would be in-line with the risk taken” he continued. 
 
“At the moment, the risk mode; tells us Russia is becoming more dangerous but we have retained our investments in Russia. We decreased them from 20 to approximately 15 per cent because we took profit,” Vanraes said. 
 
In terms of geographical breakdown in Vanraes’ Strategic Quality Emerging Bond Fund, India (11.8 per cent) and China (11.2 per cent) rank alongside Russia (13.6 per cent) as the top three countries in the portfolio. 
 
“When you make a lot of profit in bonds it is sometimes wise to exit your position. When the risk model tells us that some Russian names are becoming more risky, we decrease the weight of bonds in the portfolio, but we do not sell them. Because we still manage the fund, and the risk model is just one tool. If we believe that there is still some profit to make on Russian bonds, we will continue to hold them. We are not the prisoners of the tools.” he said.
 
In March, the rating allocation for the Strategic Quality Emerging Bond Fund was 61.8 per cent Investment Grade and 36.1 per cent BB+ and BB. The breakdown of the portfolio in terms of market allocation was 96.6 per cent Emerging Markets, 1.3 per cent Developed Markets (i.e. Luxembourg/ArcelorMittal) and 2.1 per cent cash. 

EI Sturdza now runs 11 funds covering Europe, Japan, China, North America and global, including three fixed-income funds and eight equity funds, with a combined total of more than $2 billion of assets under management.