High returns keep DoubleLine's Padilla in EM corporates

[November 19, 2014]  By Ross Kerber and Jennifer Ablan

NEW YORK (Reuters) - Emerging market debt will be a safer bet than equities in those developing countries, said DoubleLine Capital's director of emerging markets fixed income Luz Padilla.

Returns for emerging market debt could reach into the high single digits for the next 12 months, said Padilla, a level she said could beat U.S. investment-grade returns and even U.S. high-yield returns, speaking at the Reuters Global Investment Outlook Summit in New York on Tuesday.

"On a standalone and on a relative basis, I don't necessarily feel like we are expensive," Padilla said of the emerging market sector. "I look at U.S. interest rates and I look at what you get in Europe and I look at what you can get in Japan and it's like, 'I think we are a bargain relatively speaking'," she said.

For the year through Nov. 17, Padilla's $687 million DoubleLine Emerging Markets Fixed Income Fund is up 9.87 percent, compared with a 5.13 percent increase in the Barclays U.S. Aggregate Bond index and better than 99 percent of peer funds, according to Morningstar. Investors have added $128 million to the fund through Nov. 12, according to Lipper, a Thomson Reuters unit.

Padilla's fund was helped by the high share of corporate debt it holds, 92 percent of its assets as of Oct. 31, compared with 25 percent for peers on average. Its top holding is bonds issued by Colombian oil producer Pacific Rubiales Energy Corp, which she said typifies the companies she often buys that are central to their national economies and so stand to receive government support in troubled times.

Padilla's performance has also been helped by avoiding certain bonds. She avoided Ukraine, for instance, saying the country's credit is not likely to improve, and China, due to a combination of concerns about valuation and company disclosures.

Padilla says she foresees few changes to her strategy. Her input has also led DoubleLine Core Fixed Income Fund to maintain its allocation to emerging market debt at 15 percent this year, a record high for the fund.

"I think we're going to be corporate-heavy for a while," Padilla said. "That theme has played out well," she said.

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(Reporting by Ross Kerber and Jennifer Ablan; Editing by James Dalgleish)

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