WEBVTT - The Venezuela Factor: Why High-Yield, Emerging-Market Debt Is Having a Moment 0:00:06.080 --> 0:00:06.760 Welcome to trains. 0:00:06.800 --> 0:00:08.840 I'm Joe Webber and I'm Eric Delchernas. 0:00:11.039 --> 0:00:13.920 Eric twenty twenty six is already off to an interesting start. 0:00:14.320 --> 0:00:17.760 I was on vacation for the holidays, lost track of time, 0:00:17.880 --> 0:00:19.279 didn't know what day of the week it was, and 0:00:19.320 --> 0:00:21.119 then I woke up to the Venezuela news and was like, 0:00:21.120 --> 0:00:23.439 I guess I have to work on Saturday now. It 0:00:23.560 --> 0:00:24.640 was eventful. 0:00:25.079 --> 0:00:27.120 Yeah, absolutely, I think most people were shocked by it. 0:00:27.880 --> 0:00:30.040 But yeah, the news flow is ridiculous. It's like a 0:00:30.160 --> 0:00:33.280 year of news in a week every week. But in fact, 0:00:33.280 --> 0:00:36.040 the Venezuela thing already seems a little distant pass but 0:00:36.159 --> 0:00:40.120 it is a major deal. And we were struggling to 0:00:40.159 --> 0:00:42.920 get somebody on ETFIQ, the TV show I do we 0:00:42.960 --> 0:00:45.160 want to talk about this? So I did a f search, 0:00:45.200 --> 0:00:48.200 which is the search through ETFs, and I said, okay, 0:00:48.600 --> 0:00:51.800 terminal on the terminal which ETFs hold at least one 0:00:51.840 --> 0:00:55.560 percent of Venezuela, and only four results, and they're all 0:00:55.600 --> 0:00:58.080 bond funds. And the only one that had the one 0:00:58.120 --> 0:01:01.800 that had the highest and was act was vemmy right, 0:01:01.920 --> 0:01:06.120 and that's the het v emy and this is an 0:01:06.160 --> 0:01:08.800 active manager. I hadn't heard of them. I know Vertics 0:01:08.800 --> 0:01:10.360 it was a white label, but Stone Harbor was the 0:01:10.400 --> 0:01:13.040 name of the manager. I basically reached out to my 0:01:13.080 --> 0:01:14.440 buddy seth Over at Vertice. 0:01:14.720 --> 0:01:16.319 He hooked us up with. 0:01:16.560 --> 0:01:19.319 Jim who is on the show today, and we had 0:01:19.319 --> 0:01:23.160 a great discussion. He came in at last minute and 0:01:23.240 --> 0:01:26.360 talked about the bonds and why he owned them, and 0:01:26.400 --> 0:01:28.520 he bought them a year ago, so he saw something 0:01:28.600 --> 0:01:31.840 pretty early, and I think that's interesting. Then I looked 0:01:31.840 --> 0:01:33.880 through the portfolio and it's doing really well, and there's 0:01:33.920 --> 0:01:36.840 some of these really interesting countries that are like really 0:01:37.000 --> 0:01:39.880 killing it, like Latin America countries, but also outside of that. 0:01:40.240 --> 0:01:42.240 So I thought we should really get into this like 0:01:42.360 --> 0:01:47.080 em debt situation because we could see other situations right 0:01:47.120 --> 0:01:50.280 where some really left for dead bonds get restructured and like, 0:01:50.440 --> 0:01:51.760 how can you benefit from that? 0:01:52.120 --> 0:01:54.840 Can't wait to continue the conversation. The Jim that you mentioned, 0:01:55.160 --> 0:01:59.680 Jim Craig, who is the CIO and head of Emerging 0:01:59.680 --> 0:02:03.720 Market and co founder at Stone Harbor. The ETF that 0:02:03.720 --> 0:02:06.920 we're going to be talking about Vitus Stone Harbor Emerging 0:02:06.960 --> 0:02:09.959 Market's high Yield bond ETF. Again, that ticket v E. 0:02:10.160 --> 0:02:10.480 M Y. 0:02:11.120 --> 0:02:15.959 Also joining us Damien sas hour fixed income analyst with 0:02:16.000 --> 0:02:21.360 Bloomberg Intelligence, this time on trillions around the world with 0:02:21.440 --> 0:02:27.239 emerging market's debt. Jim Damian, Welcome to Trillians. 0:02:27.600 --> 0:02:28.840 Thank you, thanks for having me. 0:02:29.160 --> 0:02:32.639 Okay, Jim, what did it feel like when you woke up? 0:02:32.960 --> 0:02:35.560 I was on vacation, woke up on that Saturday to 0:02:36.480 --> 0:02:41.200 you know, the US basically going into Venezuela and extracting 0:02:42.880 --> 0:02:47.440 its president Maduro as well as his wife. What did 0:02:47.440 --> 0:02:49.639 it feel like to wake up that morning? For you? 0:02:50.360 --> 0:02:53.520 It felt pretty good. We were anticipating something would be 0:02:53.560 --> 0:02:56.320 happening in short order. You did never know the timing, 0:02:56.360 --> 0:02:58.440 didn't know exactly what was going to happen, but that 0:02:58.560 --> 0:03:02.680 was certainly a pleasant surprise. We've been witnessing the kind 0:03:02.680 --> 0:03:04.800 of collapse of Venezuela for a long time, so this 0:03:04.880 --> 0:03:06.399 is a positive change in our view. 0:03:06.639 --> 0:03:09.800 When were you able to actually get exposure to the 0:03:09.840 --> 0:03:13.720 country because you know there's sanctions, It's it's very difficult 0:03:13.720 --> 0:03:15.880 to be thinking about this if you're an oil company. 0:03:16.040 --> 0:03:18.440 The only one that has a meaningful presence there is Chevron. 0:03:18.480 --> 0:03:21.800 They have a special waiver. So what makes emerging market 0:03:21.880 --> 0:03:22.520 debt different. 0:03:22.880 --> 0:03:26.080 So this is a country that defaulted and was restructured 0:03:26.120 --> 0:03:28.519 in the early nineteen nineties. In fact, I was part 0:03:28.520 --> 0:03:30.400 of that, part of that team. So the debt has 0:03:30.440 --> 0:03:33.640 been been outstanding and trading for quite a while. More recently, 0:03:33.720 --> 0:03:36.080 the sanctions were removed from trading the debt, and that 0:03:36.200 --> 0:03:38.800 was several years ago, and we've been accumulating that debt 0:03:38.840 --> 0:03:39.320 since then. 0:03:39.520 --> 0:03:40.560 How do you go about doing that? 0:03:40.880 --> 0:03:43.119 So trades pretty actively. So it's one of the more 0:03:43.160 --> 0:03:47.480 actively traded entities in our in the emerging market's step market. 0:03:47.480 --> 0:03:49.920 It trades over the counter. It's all denominated in dollars, 0:03:50.840 --> 0:03:53.760 has coupons and maturities. Obviously they're in default, so you're 0:03:53.800 --> 0:03:56.119 you're able to pick from a menu of options. 0:03:56.320 --> 0:03:58.360 Okay, quick question on the bond. So you bought them 0:03:58.360 --> 0:04:00.600 a year ago. I believe they're up like one hundred 0:04:00.600 --> 0:04:03.360 and forty percent in a year now. They went up 0:04:03.360 --> 0:04:06.600 like one hundred percent before the extraction, then they get 0:04:06.600 --> 0:04:11.240 another boost after the extraction. Was the run up in 0:04:11.400 --> 0:04:14.560 return because people thought an extraction was going to happen, 0:04:14.560 --> 0:04:16.520 almost the way like animals can tell a tsunamis coming 0:04:16.520 --> 0:04:21.040 before humans or would you have a restructuring, even if 0:04:21.040 --> 0:04:24.160 there wasn't an extraction or was this was this whole 0:04:24.160 --> 0:04:27.440 thing on bet on something happening with this guy. 0:04:28.040 --> 0:04:30.400 It's really the claim value of what you're getting when 0:04:30.400 --> 0:04:34.200 you buy default of debt. So whf you think about Venezuela, 0:04:34.279 --> 0:04:37.039 they've been into faults in twenty seventeen, So your claim 0:04:37.080 --> 0:04:39.719 value was par one hundred cents on the dollar plus 0:04:39.720 --> 0:04:42.919 past due entrants interest, which is about one hundred another 0:04:43.080 --> 0:04:44.760 fifty cents or so, So I'd say one hundred and 0:04:44.800 --> 0:04:48.680 fifty to two hundred points in claim value, and the 0:04:48.760 --> 0:04:51.360 dollar price was somewhere around twenty, So you're buying something 0:04:51.360 --> 0:04:53.520 at twenty. The claim value is very high. That the 0:04:54.160 --> 0:04:56.600 what is difficult part is figuring out the timing of it. 0:04:56.960 --> 0:04:59.760 So last year, the timing was getting closer to whatever 0:04:59.800 --> 0:05:02.400 the whatever that means. We didn't know there was going 0:05:02.440 --> 0:05:05.080 to be an extraction of Maduro, but there's going to 0:05:05.120 --> 0:05:07.120 be some sort of change, and that was closer, and 0:05:07.160 --> 0:05:10.159 as that closeness becomes more of a reality, the bond 0:05:10.240 --> 0:05:10.960 prices went up. 0:05:11.920 --> 0:05:14.640 How do you go about figuring out what percentage of 0:05:14.680 --> 0:05:17.480 the portfolio you should expose to something that could be 0:05:18.520 --> 0:05:20.320 you know, kind of a gamble. 0:05:21.480 --> 0:05:24.599 We do a lot of probability analysis and everything that 0:05:24.680 --> 0:05:27.279 we do, so we put probabilities around, what's the upside, 0:05:27.279 --> 0:05:29.920 what's the potential downside, and we weigh it based off 0:05:29.960 --> 0:05:32.080 of that, and we literally we do this every month 0:05:32.120 --> 0:05:36.000 for everything in our portfolios. The probability that Venezuela was 0:05:36.040 --> 0:05:38.880 going to have a regime change of some sort had increased, 0:05:39.080 --> 0:05:42.520 so that increased our weighting in Venezuela, and that's something 0:05:42.560 --> 0:05:44.640 that we feel very strongly about. I mean, you have 0:05:44.680 --> 0:05:46.479 to factor in the downside as well, and we're not 0:05:46.520 --> 0:05:48.960 out of the woods yet, but that downside I think 0:05:49.040 --> 0:05:54.440 is lower now than before, so that warrants a larger weight. 0:05:55.000 --> 0:05:57.920 Okay, so the name of the ETF has emerging markets 0:05:57.920 --> 0:06:00.880 in it. Is Venezuela actually in our market or is 0:06:00.920 --> 0:06:02.760 it more like a frontier market. 0:06:03.760 --> 0:06:06.440 It's more of a frontier market right now, but it 0:06:06.560 --> 0:06:09.760 used to be just an emerging market. So it's hopefully 0:06:09.800 --> 0:06:12.359 coming back and adjusting the emerging market category. 0:06:12.440 --> 0:06:15.440 And I mean there's so that that line is obviously 0:06:15.680 --> 0:06:19.200 like where there are countries that are uninvestable almost and 0:06:19.640 --> 0:06:23.760 obviously Venezuela's entered into the realm of being investable. But 0:06:24.120 --> 0:06:26.400 do you how do you think about the risk reward 0:06:26.440 --> 0:06:29.159 for these profiles, because a lot of the countries that 0:06:29.200 --> 0:06:32.200 are in the in the portfolio, Lebanon being another one, 0:06:32.480 --> 0:06:35.359 like these are countries that are you know, the reward 0:06:35.400 --> 0:06:37.800 could be ten years off really, so how do you 0:06:37.839 --> 0:06:40.960 go about figuring out what's real and what is just 0:06:41.040 --> 0:06:41.599 too risky. 0:06:41.880 --> 0:06:44.440 That's a great point because the reward could be ten 0:06:44.520 --> 0:06:46.320 years off, for five years off, for two years off, 0:06:46.320 --> 0:06:49.040 and that time value of money is very very significant. 0:06:49.360 --> 0:06:51.960 About half of the emerging markets that morning and that 0:06:52.120 --> 0:06:55.240 genius and a rockstar, but about half of the market 0:06:55.240 --> 0:06:57.880 itself is actually investment grade, so a lots change over 0:06:57.960 --> 0:07:00.520 the past thirty four years I've been doing this. And 0:07:00.600 --> 0:07:02.880 the other half is non investment grade. And within that 0:07:02.920 --> 0:07:07.160 there are different tiers of non investment gradeness. Put it 0:07:07.160 --> 0:07:10.240 that way. In Venezuela Lebanon are at the lower end 0:07:10.240 --> 0:07:12.720 of that, and those are the ones where those can 0:07:12.760 --> 0:07:14.600 be kind of your deal drivers if you think about 0:07:14.600 --> 0:07:16.320 it from a financial terms, those are the ones that 0:07:16.440 --> 0:07:19.000 could have if you have a good information as you could, 0:07:19.120 --> 0:07:20.160 you could do really. 0:07:19.920 --> 0:07:23.440 Well in what can't you invest in right now? 0:07:23.600 --> 0:07:27.240 Things like Cuba, although Syria may come on board at 0:07:27.240 --> 0:07:29.640 some point. There's North Korea. These are countries which you 0:07:29.680 --> 0:07:31.360 that you really can't you can't invest into the. 0:07:31.360 --> 0:07:33.200 Ones when you use your compliance training at your job, 0:07:33.280 --> 0:07:35.800 it's like, yeah, do not do anything that involves these. 0:07:35.800 --> 0:07:38.400 Exactly Russia is in that right now. So these are 0:07:38.480 --> 0:07:41.400 these are countries where you just you you, you get 0:07:41.440 --> 0:07:43.040 put in the bag into the bad house if you 0:07:43.240 --> 0:07:45.200 if you invest in those for obvious reasons. 0:07:45.520 --> 0:07:47.240 But do you have to keep up on them because 0:07:47.240 --> 0:07:50.000 at some point, like maybe Russia comes back online and 0:07:50.160 --> 0:07:53.280 that becomes an opportunity. Right, you can't be completely in 0:07:53.320 --> 0:07:54.080 the dark about them. 0:07:54.160 --> 0:07:56.720 One percent. We have an entire team just going through 0:07:56.760 --> 0:08:00.240 the oh fact Office of Foreign Asset Control website, see 0:08:00.280 --> 0:08:03.440 what new new updates there are as a country been 0:08:03.480 --> 0:08:06.840 put on or taken off. That's very important and obviously 0:08:06.880 --> 0:08:08.840 you well maybe it's not obvious, but to me, you 0:08:08.920 --> 0:08:11.000 want to be ahead of that. So so country comes 0:08:11.040 --> 0:08:12.840 off of that sanctions list. 0:08:13.680 --> 0:08:17.160 As Venezuela sounds like it did, it did were there exactly? 0:08:17.640 --> 0:08:20.400 The Venezuelan bonds at one point traded at two so 0:08:20.440 --> 0:08:23.000 now they're trading at thirty five, So you want to 0:08:23.040 --> 0:08:24.920 be you want to kind of front run that flow 0:08:24.960 --> 0:08:26.160 if you can't be there when it's two. 0:08:26.320 --> 0:08:30.520 Right, Uh, let me bring Namien in because this he's 0:08:30.640 --> 0:08:33.360 a mile deep in this stuff. I always hear him 0:08:33.360 --> 0:08:37.199 over here, him talking about this. You're you're writing about 0:08:37.200 --> 0:08:41.360 this all the time. Were you into Venezuela a year ago? 0:08:41.679 --> 0:08:43.600 How have that has Let's just start with that country 0:08:43.600 --> 0:08:48.680 for you. How's your research been on Venezuela before and 0:08:48.760 --> 0:08:49.640 after the extraction? 0:08:49.880 --> 0:08:51.480 Well, I think we have to look back at the 0:08:51.520 --> 0:08:53.880 fact that these bonds were sanctioned. They weren't you weren't 0:08:53.880 --> 0:08:57.079 allowed to own them, right until President be former President 0:08:57.120 --> 0:09:01.240 Biden basically removed the sanctions on trading in the secondary market, 0:09:01.280 --> 0:09:04.160 which opened the door for Jim and for others to 0:09:04.240 --> 0:09:07.280 start buying up these bonds again. Right, So that's relatively recent. 0:09:07.280 --> 0:09:08.880 And if you look at like the return, I mean, 0:09:09.160 --> 0:09:10.559 you're absolutely right. I mean, if you look at the 0:09:10.640 --> 0:09:14.520 JP Morgan NB Venezuela bond index rose one hundred percent 0:09:14.600 --> 0:09:18.120 last year. But it's not alone Lebanon, Ukraine, I mean, 0:09:18.200 --> 0:09:21.200 Sri Lanka, Gana, all of these sort of Zambia, these 0:09:21.200 --> 0:09:25.839 distressed em dollar bond issues. Issuers have had tremendous years 0:09:25.840 --> 0:09:28.360 in twenty twenty five, so you have to kind of 0:09:28.840 --> 0:09:31.960 parse out how much of the move is due to people, 0:09:32.280 --> 0:09:35.280 you know, expecting regime change in Venezuela and how much 0:09:35.400 --> 0:09:37.440 was just the beta trade that we saw on em 0:09:37.520 --> 0:09:39.800 high yield over the better part of last year. My goodness, 0:09:39.840 --> 0:09:40.600 it's been a good run. 0:09:41.760 --> 0:09:45.439 But what's underlying that that beta trade? Like why there 0:09:45.640 --> 0:09:48.280 why the enthusiasm for countries that we haven't really been 0:09:48.320 --> 0:09:49.120 hearing that much about. 0:09:49.240 --> 0:09:52.720 I would say the risk sentiment, suppression of volatility, the vics, 0:09:52.760 --> 0:09:54.280 all the things that we look at, right, I mean 0:09:54.400 --> 0:09:58.480 vall is that cyclical lows across equities, bonds and effects, right, 0:09:58.559 --> 0:10:01.640 So I mean that's a perfect the environment for investors 0:10:01.679 --> 0:10:05.120 to go and you know extract carry right, and look, 0:10:05.240 --> 0:10:07.240 Venezuela doesn't pay off, right, I mean, these are the 0:10:07.280 --> 0:10:09.880 faulted bonds. There's no coupon income there. But you know, 0:10:10.160 --> 0:10:12.040 the point is to take a little bit of a 0:10:12.080 --> 0:10:16.640 punt on, you know, a very binary outcome makes a 0:10:16.679 --> 0:10:18.440 lot of sense when the bonds are treading at you know, 0:10:18.520 --> 0:10:21.120 five cents on the dollar, right, and the rest of 0:10:21.120 --> 0:10:25.079 the universe in em distressed is up in double digits plus. So, 0:10:25.080 --> 0:10:27.080 so you know, kudos to Jim and the team at 0:10:27.120 --> 0:10:30.199 Stone Harbor for identifying that, and you know, identifying the 0:10:30.200 --> 0:10:32.040 fact that the bonds are no longer sanctioned and that 0:10:32.080 --> 0:10:35.760 they do they do demand the place in investor portfolios, 0:10:35.800 --> 0:10:39.440 albeit probably a very small waiting, you know, relative to 0:10:39.679 --> 0:10:40.680 other more developed markets. 0:10:40.679 --> 0:10:43.959 Well that's a really good point, Jim, like the you 0:10:44.000 --> 0:10:47.240 wouldn't be able to get this exposure through any other 0:10:47.679 --> 0:10:50.640 ETF right, Like, so, how do you talk to institutional 0:10:50.640 --> 0:10:55.440 investors about how to put this into a portfolio when 0:10:55.920 --> 0:10:58.040 you know what you're offering here is not something that 0:10:58.080 --> 0:11:00.680 anybody else is going to get through, like you know, bond. 0:11:01.080 --> 0:11:03.199 Well, it's interesting because most of our most of our 0:11:03.200 --> 0:11:06.800 client bases is actually in institutional investors and they want 0:11:06.840 --> 0:11:10.520 that exposure. So they they view the market very differently 0:11:10.520 --> 0:11:11.920 than a lot of others. They view this as a 0:11:12.040 --> 0:11:14.280 this is a market that that has historically outperformed by 0:11:14.280 --> 0:11:16.760 the fixed income comes with higher volatility. They appreciate that, 0:11:16.760 --> 0:11:19.240 they understand it, but that volatility can be a friend 0:11:19.240 --> 0:11:21.880 as well, So they want that exposure. And something like 0:11:21.880 --> 0:11:25.200 a venezuela is something they understand from a from a 0:11:25.280 --> 0:11:28.200 risk and reward standpoint, and they want to be exposed 0:11:28.200 --> 0:11:29.640 to that. But to your point, I'm on the ETFs, 0:11:29.679 --> 0:11:31.960 aren't that many ETFs that that actually own it? 0:11:42.240 --> 0:11:45.160 This is where I think ETFs are perfect because this 0:11:45.240 --> 0:11:48.679 makes something very complicated and almost impossible for most people 0:11:48.760 --> 0:11:50.640 very easy. You just, you know, roll out of bed 0:11:50.679 --> 0:11:52.440 and you click buy and you own all these cool 0:11:52.480 --> 0:11:56.920 bonds right from these uh frontier countries, the diversification. 0:11:56.720 --> 0:11:59.280 Market countries, some of which happen to. 0:11:59.240 --> 0:12:05.640 Be em well, I'm looking at the portfolio. I mean, honestly, Kazakhstan, Ethiopia. 0:12:06.160 --> 0:12:08.680 Yeah, stand's a pretty good credit. I mean you got 0:12:08.679 --> 0:12:10.320 to take a step back here, I mean, because now 0:12:10.320 --> 0:12:12.280 you get it into the long reads with me. You know, 0:12:12.360 --> 0:12:14.960 like you know, Venezuela is a very unique situation, right, 0:12:15.040 --> 0:12:17.679 I mean you call it frontier. I mean it used 0:12:17.720 --> 0:12:19.520 to be one of the most developed of emerging markets 0:12:19.559 --> 0:12:22.040 going back to the seventies and eighties, and everyti things happened. 0:12:22.240 --> 0:12:24.839 Well, you know, ours figured prominently in a James bond. 0:12:25.520 --> 0:12:26.600 I learned through all. 0:12:26.600 --> 0:12:27.720 This, ye Caanakas. 0:12:28.280 --> 0:12:30.160 But but look, I mean I think you have to 0:12:30.240 --> 0:12:32.880 kind of take a step back and say, okay, you 0:12:32.920 --> 0:12:35.280 know it's not just ETFs guys, and I know this 0:12:35.360 --> 0:12:38.320 is you know, this is trillions here, but active fund managers. 0:12:38.320 --> 0:12:40.079 You know, I'm hard pressed. I did a whole research 0:12:40.120 --> 0:12:42.920 report last year. Last week, I was looking for anybody 0:12:42.920 --> 0:12:45.199 who had Benny on their books, and outside of a 0:12:45.240 --> 0:12:47.920 few funds run by Ashmore won by GMO, very few 0:12:47.960 --> 0:12:52.240 funds have greater than three percent of their portfolio in Venezuela. 0:12:52.280 --> 0:12:55.400 And that's after last year's one hundred percent plus game. 0:12:55.880 --> 0:12:58.480 So you know, it seems like investors have been very 0:12:58.679 --> 0:13:01.400 very I don't us a conservative, but they've been very 0:13:01.440 --> 0:13:03.920 They've been managing that concentration risk really really well. Because 0:13:03.920 --> 0:13:06.280 we're not just talking about many sovereign bonds. We're talking 0:13:06.280 --> 0:13:08.560 about Petavesa, the state on oil company. Again, these are 0:13:08.600 --> 0:13:11.680 all dollar denominated bonds, but those are the two big issuers. 0:13:11.679 --> 0:13:15.960 There's other little LACR, the utility, there's some other you know, 0:13:16.040 --> 0:13:19.760 sort of any linked debt out there, but you know, 0:13:19.760 --> 0:13:22.120 buying and large. What we're talking about is Petavesa and 0:13:22.120 --> 0:13:26.080 thezel Venezuela sovereign and those bonds sixty call it seventy 0:13:26.160 --> 0:13:29.120 billion dollars outstanding. Just how much of that can you 0:13:29.160 --> 0:13:31.679 own in a portfolio to give you, I don't know, 0:13:31.760 --> 0:13:34.120 double digit exposure. I mean it's it's going to be 0:13:34.160 --> 0:13:34.679 a challenge. 0:13:34.800 --> 0:13:38.280 Yeah, well let me bring real quick here. We don't separate. 0:13:38.360 --> 0:13:41.840 There's em debt, there's investment grade, which would be the 0:13:41.840 --> 0:13:45.920 big tickers EMB. Then there's high yield, which is the 0:13:45.920 --> 0:13:48.319 big tickers emhy. Those are the two big I shares 0:13:48.360 --> 0:13:51.640 products your high yield. So you're basically trying to be 0:13:51.800 --> 0:13:54.960 e e mhy. Now let me go back to Damien 0:13:55.000 --> 0:13:57.400 on this. Like let's say you're you know, I don't know, 0:13:57.440 --> 0:14:00.800 your college roommate texts you and says, hey, I saw 0:14:00.840 --> 0:14:03.560 this venezuela. This happens to me sometimes and it's like 0:14:04.000 --> 0:14:05.440 I kind of want to get in on this stuff. 0:14:06.559 --> 0:14:09.320 Like do you tell them, hey, look, uh, maybe don't 0:14:09.320 --> 0:14:11.560 do high yield? Do more of the investment grade or 0:14:12.000 --> 0:14:14.600 like is or should you have both? Like what's the 0:14:14.800 --> 0:14:18.040 normal person's play here in terms of like adding this 0:14:18.080 --> 0:14:21.000 to a portfolio and the difference between going high yield 0:14:21.080 --> 0:14:22.000 or investment grade. 0:14:22.680 --> 0:14:25.280 So I guess for me, Look, you know, I mean 0:14:25.320 --> 0:14:28.440 most people link emerging market debt forget about investment grade 0:14:28.480 --> 0:14:30.560 or highyield with an EM they assume it's HIG yield. 0:14:30.680 --> 0:14:32.600 Yeah, I mean that's the historical assumption. 0:14:32.680 --> 0:14:34.720 Yeah, you know, we were always the guys we em 0:14:34.800 --> 0:14:36.880 you know, portfolio managers and traders. We were always the 0:14:36.880 --> 0:14:39.080 guys they plunk us at the end of the row, 0:14:39.560 --> 0:14:41.320 right next to the US HIG yield guys. We were 0:14:41.360 --> 0:14:44.640 like the you know, the stepchild, right, the one nobody wanted. 0:14:44.800 --> 0:14:46.760 And you know, obviously as the acid classes developed over 0:14:46.760 --> 0:14:48.480 the better part of the last twenty five thirty years, 0:14:48.640 --> 0:14:50.880 you know, things have changed. But you know, far be 0:14:51.000 --> 0:14:53.120 it from me to judge, you know, what makes you know, 0:14:53.480 --> 0:14:56.040 investors kind of you know, look at emerging markets. In 0:14:56.040 --> 0:14:58.400 my opinion, it's going to be about carry. It's going 0:14:58.480 --> 0:15:00.720 to be about you know, higher coop. It's going to 0:15:00.760 --> 0:15:03.320 be about you know, and you're paid for that risk, right. 0:15:03.240 --> 0:15:05.120 All real quick. Just for anyone who just was like, 0:15:05.160 --> 0:15:08.240 what does that mean? What is just describe carry. 0:15:08.400 --> 0:15:10.640 A return over and above US treasuries. In my mind, 0:15:10.680 --> 0:15:12.800 if you're talking about US dollar debt, if you're talking 0:15:12.840 --> 0:15:16.720 about dollar denominated paper, you're benchmarked to the US Treasury curve. Right, 0:15:16.840 --> 0:15:20.880 So how much excess return excess yield are you getting 0:15:21.200 --> 0:15:24.240 by investing in an emerging market dollar debt all else 0:15:24.280 --> 0:15:28.160 equal maturity duration, equal relative to US treasuries and you 0:15:28.240 --> 0:15:31.400 get considerable. I mean, there's very few asset classes US 0:15:31.160 --> 0:15:34.440 dollar denominated fixed in COMACI classes that can give you 0:15:34.480 --> 0:15:38.480 that additional that that additional, that incremental carry, that incremental coupon. 0:15:38.600 --> 0:15:41.080 Yeah, so, Joel, I'll give you the numbers. The GOVT, 0:15:41.280 --> 0:15:44.000 which is the I shares government bond ETF to covers 0:15:44.040 --> 0:15:46.800 the whole curve is up seven percent in the past 0:15:46.840 --> 0:15:50.920 two years. VEMMI is up thirty one percent, EMHY up 0:15:50.960 --> 0:15:53.280 twenty seven percent, and emb up twenty one percent. So 0:15:53.800 --> 0:15:56.200 that's the carry, right, you got So it has worked 0:15:56.240 --> 0:15:58.360 out for sure, and high yields done even a little better. 0:15:59.320 --> 0:16:01.840 Yeah, fair to say, yeah, absolutely. And look, you know 0:16:01.880 --> 0:16:04.360 again what we're kind of when you look at you know, 0:16:04.480 --> 0:16:08.720 emerging market debt, most people it's mostly sovereign quasi sovereign issuers, 0:16:08.720 --> 0:16:11.960 you know, but in this instance, you know, there's there's 0:16:12.000 --> 0:16:14.840 you know, we're talking about both, right, We're talking about peteveesa, 0:16:14.840 --> 0:16:16.720 which is a you know, state on oil company i 0:16:16.760 --> 0:16:20.080 EA quasi sovereign issuer and you're talking about Venezuela the sovereign, right, 0:16:20.080 --> 0:16:23.400 So when you look at EMB, it's all sovereign, it's 0:16:23.440 --> 0:16:26.400 all quasi sovereign, but they avoid all EM corporate stuff. Right. 0:16:26.520 --> 0:16:28.800 So if you want to kind of expand the universe 0:16:28.800 --> 0:16:31.440 into EM corporates and start looking at the Pemmexes and 0:16:31.480 --> 0:16:33.640 the Petrobrass, well, PEMS is a quasi but you know 0:16:33.960 --> 0:16:37.720 valet is another one. You know, carry I mean incremental coupon, 0:16:37.840 --> 0:16:40.000 you know, return potential goes up that much more. So 0:16:40.160 --> 0:16:43.000 it's really about how you carve up the universe. And 0:16:43.080 --> 0:16:45.600 you know, from from I guess you know, Jim's perspective 0:16:45.920 --> 0:16:48.680 did a pretty good job of identifying what was really 0:16:48.720 --> 0:16:52.640 one of those last few vestiges of you know, incremental 0:16:52.720 --> 0:16:55.280 upside and EM because I mean, as far as the 0:16:55.320 --> 0:16:58.320 I could see, there were very few with the potential 0:16:58.320 --> 0:17:00.800 to do a triple digit return year over your return 0:17:00.880 --> 0:17:01.440 like Beny did. 0:17:01.920 --> 0:17:03.640 It's been a it has been a it's been a 0:17:03.640 --> 0:17:05.680 good year. There's been a not a lot of those 0:17:05.720 --> 0:17:07.639 opportunities out there. There's still a few out there that 0:17:07.720 --> 0:17:10.239 are right now. But no, to your point, you have 0:17:10.280 --> 0:17:12.439 to you have to identify them. That's the benefit of 0:17:12.960 --> 0:17:14.879 you know, tooting our own hon here from an active 0:17:14.880 --> 0:17:17.400 management standpoint. But I think it's important to note an 0:17:17.440 --> 0:17:20.920 actively managed GTF in this format I think really does 0:17:22.160 --> 0:17:25.120 work well in the strategy because you can't overweight those opportunities. 0:17:25.280 --> 0:17:25.520 Yeah. 0:17:25.760 --> 0:17:30.080 Actually, on the question of sovereign versus corporate, and you 0:17:30.160 --> 0:17:33.000 brought up Petavesa there, like, Jim, what exposure. 0:17:32.600 --> 0:17:32.800 Do you have? 0:17:32.920 --> 0:17:35.840 Is it all sovereign or and is there any desire 0:17:35.880 --> 0:17:37.520 to try and go get the Pedavesa debt. 0:17:37.920 --> 0:17:40.440 No, we definitely own Petasa debt. In fact, that's we're 0:17:40.440 --> 0:17:43.280 more overweight in the product and in the exactly. So 0:17:43.359 --> 0:17:46.920 overall we're about fifty five percent sovereign forty five corporate. 0:17:47.000 --> 0:17:49.880 So we do yea by design by design, so it's 0:17:49.880 --> 0:17:52.320 fit roughly fifty to fifty by design, but we're overweight 0:17:52.359 --> 0:17:55.679 sovereigns right now. But to your point, the corporate market 0:17:55.960 --> 0:17:59.320 is has grown substantially in size and volume, and it's 0:17:59.359 --> 0:18:02.359 very liquid and these or name brand you know, companies 0:18:02.400 --> 0:18:06.159 that are world renowned and they do quite well, and 0:18:06.200 --> 0:18:08.840 they actually offer a lot of extra yields, So why 0:18:08.880 --> 0:18:09.600 not take it well. 0:18:09.560 --> 0:18:11.240 Jim, can I ask you how much of your position 0:18:11.320 --> 0:18:14.320 is in those eight and a half percent Venezuela. I'm sorry, 0:18:14.560 --> 0:18:18.359 Petavesa twenty twenties, because you guys should be aware not 0:18:18.440 --> 0:18:21.199 all bonds are created equal, and this particular bond is 0:18:21.240 --> 0:18:23.639 secured by fifty point one percent of SIDCO, you know, 0:18:23.760 --> 0:18:26.600 SITCO here in the US, Venezuela, the three big huge 0:18:26.600 --> 0:18:28.960 refineries here in the US, as well as convenience and 0:18:29.000 --> 0:18:32.480 gas stations across the country. You know, there has been 0:18:32.640 --> 0:18:34.439 quite a bit of movement there. I'll let Jim go 0:18:34.520 --> 0:18:37.119 into it a little bit about Paul Singer and the 0:18:37.119 --> 0:18:40.280 folks at Elliott and some of the recovery that's already 0:18:40.320 --> 0:18:43.000 been priced into that particular issue. 0:18:42.720 --> 0:18:44.600 Right, and that bond never really sold off as much 0:18:44.640 --> 0:18:48.399 as the rest of the Venezuela and Pedasa debt, and 0:18:48.440 --> 0:18:51.000 it's now trading at par so the claim value is 0:18:51.000 --> 0:18:53.400 obviously very very real in that and that's working its 0:18:53.400 --> 0:18:56.000 way through the court system. We don't know that we 0:18:56.240 --> 0:18:59.240 preferred to put the risk in lower dollar price bonds 0:18:59.240 --> 0:19:01.320 and try to get somemize more of the upside, but 0:19:02.000 --> 0:19:04.160 I'm very happy that that's working its way through. I'm 0:19:04.600 --> 0:19:07.520 I'm happy for the bondholders that they'll get some recovery 0:19:07.560 --> 0:19:08.920